Magazines Archives - 2012 January

India’s domestic retailers support FDI
Story 2 - News Feature

The aborted FDI (foreign direct investments) to further open up INDIA’S retail industry to international players is the talk of the retail fraternity in THE COUNTRY. It was a move that had the approval of both the majority of local and foreign retailers. Jayanthi Iyengar has the details on the sudden reversal which sent the nation’s top retailers’ stock plunging.

2011 could have been a landmark year in the history of India’s retail industry. Instead, the Indian retail story has come to exemplify India’s policy paralysis and political instabilities.

On November 24, a Cabinet committee of ministers cleared a proposal to further open up FDI in Indian retailing. The proposal was cleared, overriding objections from coalition partners, particularly the Trinamool Congress.

For global readers not familiar with Indian politics, the Indian National Congress — led by the United Progressive Alliance (UPA) — is currently in power, with support from regional parties, including the Trinamool Congress.

According to the clearance, multibrand foreign retailers such as Walmart, Carrefour and Tesco could invest 51% (instead of 50% earlier) in their joint ventures (JVs) in India.

Simultaneously, the Cabinet also cleared a proposal for allowing singlebrand foreign retailers such as Marks & Spencers, Zara and GAP to convert their 51% foreign-holding operations into wholly-owned subsidiaries of the parent company.

The clearance did not come without riders. For 51% ownership in multi-brand retailing, foreign retailers had to bring in a minimum capital of US$100 million, of which 50% had to be invested in backend retail infrastructure such as cold storages — something India lacks and considered to be responsible for the country’s high farm-to-market losses, estimated to be 30%-40% of farm produce.

Further, foreign retailers had to procure 30% of their products from small-scale enterprises. Moreover, foreign retailers wanting to open retail outlets in India had to seek clearance from state governments under the Shops and Establishments Act.

However, such a clearance is not exclusive to foreign retailers. All shops and establishments in India have to get such a clearance.

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