Govt Moots 100% FDI in Single-Brand.

NEW DELHI: The government is raising the bar for foreign direct investment (FDI) in single-brand retail by proposing to hike the limit from 51% to 100% in a move that is expected to encourage the likes of furniture-maker Ikea and luxury brands such as Louis Vuitton set up shop in India.

Government officials told TOI that the department of industrial policy and promotion moved a Cabinet note earlier this week, seeking an increase in the FDI cap. Earlier, it had proposed to increase the ceiling to 74%, but decided to adopt a more aggressive stand. It has argued that companies such as Ikea, which produces mass consumption products and accessories, and prominent luxury brands will set up stores if 100% FDI is permitted. Besides, it has made a case for the increase on the grounds that with full-control over the Indian venture, foreign retailers will have a sizeable presence in India and will be encouraged to source locally.

"You cannot expect companies to have five stores in five-star hotels and source from local vendors. In the absence of scale, it makes more sense to import and sell in the Indian market," said an official. More than luxury brands it is mass consumption items such as furniture and garments that are expected to add to the sourcing wave. Several large companies already source from Indian vendors for their stores in other countries, and the government expects volumes to go up significantly if there are outlets in India too. "A higher ceiling will help the domestic industry as there will be an enhanced level of sourcing from local players. Besides, there is no threat to mom-and-pop stores in any way," said Vivek Mehra, executive director at consulting firm PricewaterhouseCoopers.

The move to enhance the FDI ceiling for single-brand retail comes at a time, when the government is unable to push through a proposal to allow international chains such as Wal-Mart and Best Buy to open what are referred to as multi-brand stores.

Earlier, the industry department had got a committee of secretaries to endorse a proposal to allow up to 51% FDI in the multi-brand segment. Sources in the government said political consensus is still missing on it. In a recent interview, commerce & industry minister Anand Sharma had told TOI that he would take up with Congress president Sonia Gandhi and Prime Minister Manmohan Singh to build consensus on allowing FDI in multi-brand retail. Sharma is hoping that he would be able to push through the proposal to increase the ceiling for single-brand retail. If all goes well, the industry department is hoping to get a green light by the end of the year.

Source : timesofindia.indiatimes.com