Western Retailers Weigh In on India’s Global Initiative

The Indian union cabinet agreed to allow 51 percent foreign direct investment in multibrand retail and 100 percent FDI in monobrand retail.

NEW DELHI — Western retailers welcomed the news that after two years of intense debate, India has decided to open its doors to global retailers.

This story first appeared in the November 28, 2011 issue of WWD.  Subscribe Today.

“Allowing foreign direct investment in retail would be good news for Indian consumers and businesses, and we await further details on any conditions,” said a Tesco spokesman. “We already have a franchise arrangement with Tata’s Star Bazaar stores. Learning about India and serving more customers every month is a win-win for customers, suppliers, Tesco and Tata.”

“It all now depends on what the parliament decides,” said Elisabeth Ponsolle des Portes, president of French luxury goods association Comité Colbert. “Some say it’s a simple formality. Others say there will be opposition. [The] government’s initiative shows it has been very receptive to our arguments.”

Armando Branchini, president of the association of Europe’s main luxury goods groups, known as the European Cultural and Creative Industries Alliance, or ECCIA, said: “This decision will boost the presence of the international brands in a very promising market.” He also advocated cutting Indian import duties on luxury goods by more than half of the current rate estimated at 34 percent.

“It is definitely good news and we appreciate the important decision of Indian government,” said Michele Norsa, chief executive officer of Salvatore Ferragamo Group. “We expect investments in India from luxury and fashion companies to benefit from this decision, and the process of developing infrastructures will improve and boost the growth of the luxury industry in India.”

“At the moment, the plans for the Roberto Cavalli Group are to manage the Roberto Cavalli brand through franchising and distribution agreements with local partners,” the company said.

The Indian union cabinet on Thursday agreed to allow 51 percent foreign direct investment in multibrand retail and 100 percent FDI in monobrand retail.

Although multibrand retailers will only be allowed to open shops in cities with populations of one million, there are more than 50 such locations. India’s retail market is growing at more than 20 percent each year and is estimated to be worth more than $450 billion. It is expected to grow substantially with this new move.

Until now, FDI in multibrand retail has never been allowed. Fifty-one percent FDI in single-brand retail was allowed after considerable debate in 2006 and has resulted in the entry of more than 50 global brands with local partners in India.

However, a bulk of India’s retail is dominated by mom-and-pop stores, which constitute a large part of the voting block. The opposition has been protesting the decision vociferously.

“FDI in multibrand retail will be disastrous,” said Sharad Yadav, leader of the Janata Dal United party. “It will completely destroy our markets. We will strongly oppose the FDI.” But others feel the development will lead to economic growth for India. “It would generate [millions] of jobs in the next decade,” said Confederation of Indian Industries chairman Thomas Varghese. “Common goods will be more affordable, leading to a savings of $25 billion to $30 billion, almost 0.5 percent of the GDP, by 2020.”

Global mega chains such as Wal-Mart, Tesco and Carrefour can now open shop in India, where their presence has been limited to wholesale or cash-and-carry. Wal-Mart has six cash-and-carry units in India in partnership with Bharti Enterprises. German retail chain Metro AG also has six stores and Carrefour has one. All plan to add more cash-and-carry units in 2011 and 2012, because the decision on multibrand retail appeared far from a reality.