India Issues Approval of FDI in Retail

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Nov. 28 – India has accepted overseas companies to own as much as 51 percent of retailers selling more than one brand, paving the way for global companies such as Wal-Mart and Tesco to own stores in the country. Foreign organizations must invest at least US$100 million, half of which has to be spent on developing back-end infrastructure.

India’s Cabinet cleared retail ownership rules, including permitting 100 percent foreign holding in single brand stores. According to the government, India’s decision to permit overseas ownership in retail will create up to 10 million jobs and give farmers better prices. It will be mandatory for foreign retailers to purchase at least 30 percent of the goods sold in the ventures from small industries. Furthermore, stores will only be allowed to operate in 53 cities with populations of 1 million or more, and the government will preserve the first right to buy farm products.

Creation of jobs
According to the government, it will create 10 million new jobs – including 6 million in the logistics sector alone. The Indian model is fairly unique and has been drafted in such a way that it is sensitive to the interests of farmers as well as consumers. The policy has been prepared after 18 – 20 months of broad consultations with all the Indian states and stakeholders such as farmers unions, consumers and retail associations. The policy envisages bringing down post-harvest losses and aims to create improved rural infrastructure like cold storages.

So far, states like Punjab, Haryana, Maharashtra and Rajasthan have welcomed the guiding principle and the government hopes that other states will follow suit after appreciating the profit that could increase.

Only 53 cities out of 8,000 in the country meet the criteria for these new regulations, and for the rest of the country the current policy continues to be relevant. In respect to proposals involving FDI of more than 51 percent: 30 percent of the sourcing would have to be done from village and cottage industries as well as small and medium-sized enterprises. This condition would ensure that the SME sector is benefited.

Small retailers will not only coexist with the big businesses, but also develop by 13 percent as a result of the new policy. Small retailers will boost their endeavors to improve their customer attraction through steps such as adding new product lines, brands, better displays, store renovations, introduction of self service, better home delivery, more credit sales, and acceptance of credit cards.

In addition, this development would let the retail sector build shopping facilities – similar to the rest of the world – and have a wider choice of retailers within the malls that can provide greater selection and stock to consumers.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in India. For more information, please contact info@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

One Response

  • pranava says:

    I respect Indian govt to show concun towards farmers,but we all so give important towards Indians future. when we give 51% of FDI the foreign companies rule over economy so the small business stores will face big problem

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