Government May Allow 100% FDI in Single-Brand Retail.

NEW DELHI The government is considering allowing foreign companies to completely own single-brand retail stores in the country, after it was forced to put its plans of letting foreign retailers invest in multibrand outlets on the backburner due to lack of political consensus.

At present, only 51% foreign direct investment, or FDI, is allowed in singlebrand retail and the industry ministry is now looking at a proposal to raise this limit to 100% as it seeks to send a positive signal to foreign investors. "We have discussed the proposal internally and it was even put up before a joint government-industry task force," a government official told ET.

The move to raise the FDI limit in singlebrand retail is being accompanied by a tightening of norms for the sector. In its update of the FDI policy issued on September 30, the government has mandated that the foreign investor must own the brand that it intends to retail in India. This is to ensure that franchisees of brands do not take advantage of a more liberal investment regime.

Ironically, while the government now seeks to appease global investors by possibly hiking the FDI ceiling, the decision to allow foreign investment in single-brand retail a few years ago was meant to be the first step towards the eventual opening up of the entire retail sector to foreign competition.

Global Retailers Impatient

Global retail chains such as Walmart, Tesco and Carrefour have been impatiently waiting for several years to open stores in India and earlier this year a committee of secretaries had endorsed a proposal to allow 51% FDI in multi-brand retail. But the proposal has not gone to the Union Cabinet because of differences within and possibility of political opposition.

Last week, on his way back from the US, Prime Minister Manmohan Singh said FDI in multi-brand retail would be allowed only after a consensus is reached. But while big foreign retailers will have to wait for some more time, single brand owners are excited at the possibility of higher foreign investment limit, as it would allow them to bring more funds into India to expand their business. "We are looking at opening at least 20 new boutiques across India in the next three years and such a policy will make it possible," says Manishi Sanwal, general manager, LVMH Watch and Jewellery. "Despite having resources we were unable to expand as much as we would have liked," he added.

"We will definitely invest more aggressively and push up our expansion plan," says Deepak Aggarwal, managing director, Kazo Fashions, one of the leading women's fashion brands.

Full ownership of their ventures may also encourage some of the brands to go on their own instead of entering into joint ventures or licensing agreements with Indian retailers. Reliance Retail, part of the Reliance Industries group, has a joint venture with Marks and Spencers while Trent, the retail arm of the Tata group, has tied up with Spanish fashion retailer Inditex Group that owns the Zara brand.

Source : economictimes.indiatimes.com