NEW DELHI — Foreign retailers can own single-brand stores in India after all.
The Indian government on Tuesday passed a notification that allowed foreign firms to wholly own single-brand retail chains in India. The change initially was proposed by the government cabinet on Nov. 24.
The decision Tuesday put to rest fear in the industry that the proposal might, in the end, disintegrate like the one approved at the same time to allow 51 percent foreign direct investment, or FDI, in multibrand retail. That proposal was put on hold after protests by the opposition in Parliament.
Many single-brand retailers such as Hermès, Christian Dior, Louis Vuitton, Gucci and Tommy Hilfiger have entered the Indian market via partnerships — single-brand retail with 51 percent FDI has been allowed in India since 2005. Over the last few years the debate about increasing this amount has been contentious.
As Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry, pointed out, the latest move will increase FDI, “but it will also lead to more choices for consumers. Global retailers are bound to bring in global best practices and technology that will lead to a more competitive marketplace benefiting the consumers,” he said.
The government has stipulated that certain conditions will need to be met before allowing sole ownership. The most important of these is that the company will need to source 30 percent of its goods from Indian small, village and cottage industries and artisans. This rule would appear to make it unlikely major luxury brands will want to wholly own their stores in India.
The definition of small industries here is those that have invested up to $1 million in plant and machinery. “This will provide stimulus to domestic manufacturing value addition and help in technical upgradation of our small industry,” said Anand Sharma, commerce and industry minister.
The U.S. India Business Council estimates that with the opening up of this segment, India’s single-brand retail market will more than triple over the next five years, from the present $7 billion to $20 billion to $25 billion
The notification comes close on the heels of the Foreign Investment Promotion Board clearing French retailer Christian Louboutin’s proposal to set up retail chains in India.
Retailers in India have welcomed Tuesday’s move, as foreign companies now have the option to buy full company ownership from their local partners, having had the benefit of the know-how and local knowledge of the Indian partners. Shares of retail chains such as Shopper’s Stop Ltd. increased by 5.1 percent, and those of Pantaloons by 4.4 percent as the news reached the markets.
The issue of FDI in multibrand retail has come up for a renewed examination as well. “We hope the initiative is a precursor to further liberalization in the sector in the days to come,” said Rajan Bharti Mittal, managing director of Bharti Enterprises, which is the partner for Wal-Mart in India.
However, as industry analysts assess the situation, the consensus seems to be that multibrand retail would not be allowed until at least after the Parliament elections later this year.
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