India FDI Gains Crucial Victory

The Indian ruling party won a key victory Wednesday in the ongoing debate over foreign direct investment in multibrand retailing.

NEW DELHI — The Indian ruling party won a key victory Wednesday in the ongoing debate over foreign direct investment in multibrand retailing when the lower house of Parliament voted 253 to 218 to allow the plan.

This story first appeared in the December 6, 2012 issue of WWD.  Subscribe Today.

But the issue is not over yet.

Today and Friday, the upper house of Parliament will debate the government’s proposal, with a vote due Friday. The ruling party has only a minority in this chamber and the moral victory the government is claiming with Wednesday’s win will be put to the test.

The government had approved FDI in multibrand retail in September under which a foreign brand would be allowed 51 percent ownership in India, with several strictures, such as the retailer would only be allowed to operate stores in cities with a population of more than one million people, individual states could choose whether to allow multibrand retail in their state and overseas retailers must source a certain amount of product from India.

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Several political parties, including the Bharatiya Janata Party, have been adamant that the decision be withdrawn and work in the winter session of Parliament that began Nov. 22 all but ceased until the government agreed to a vote.

“The country has been discussing this for the last 10 years. Whichever way, the country has to move on. There are hundreds of other problems. The government should think about how to make retailing more efficient from now on,” said Arvind Singhal, chairman of Technopak Advisors.

Global retailers such as Wal-Mart Stores Inc., Tesco and Carrefour have been closely awaiting the decision as India’s $500 billion retail market continues to grow. According to a white paper by Technopak Advisors, the share of modern organized retail in the overall retail industry will grow from 7 percent now to 20 percent. “In revenue terms, organized retail would have grown to $162 billion in 10 years [from $34 billion]. At a weighted average tax rate of 10 percent, this works out to tax revenues of $16.2 billion,” the paper noted.

With an election year coming up in 2014, the political parties are trying to garner support from farmers and mom-and-pop store owners who constitute more than 90 percent of all the country’s retailers. Opposition leaders insisted that allowing FDI in this sector would lead to social unrest as small shops would die out.