India is a dream destination for global retailers, owing to India’s nearly 1.2 billion population. But, how much these foreign retailers can grab from this consumers’ high disposable incomes totally dependsupon the central government’s evolving policy on FDI for the retail sector. As per the Department of Industrial Policy and Promotion (DIPP) regulation, as of now India only permits single brand retailing where different products can be sold under one brand name. Brands including IKEA, Nike andAdidas operate under a single brand regulation.
Currently, India only allows 51% investment in multi brand retail.That is the reason retail giants including Harrods, Wal-Mart, Tesco, Macy’s amongst others have not been able to launch their B2C business in India. There has been constant discussion about increasing the limit for foreign investment in multiband retail.
Multi-brand Retail in India
Multi-brand retail allows the distribution of different brands under one roof, for example, Big Bazar, Reliance, Shopper Stop amongst others. The central government has a standardised policy as far as the implementation of multi-brand retail is concerned and stategovernments/Union Territories have been given the power to apply their discretion in terms of accepting/ rejecting the policy. As per the latest data, only 12 states/Union Territories have agreed to the central government policy.
There are certain stipulations over the 51% cap, which are explained as below:
1. As per the policy, a foreign retailer has to do at least US$ 100 million (about 700 core) worth of investment in India. They are only allowed to open the retail store in an area having a minimum of 10 lakhpeople residing there.
2. It is mandate to invest 50% of total FDI in back-end infrastructureincluding processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. within the first three years of operations.
3. Government has made it mandatory for foreign players to source 30% raw material locally from SMES, agricultural co-operatives and farmers’ co-operatives.
4. Multi-brand retailers are not allowed to do trade via ecommerce channel by any means. Commerce and Industry minister, PiyushGoyal, has announced on recently that the government would not allow multi-brand retail trade by foreign ecommerce companies and that they could only be agnostic platforms.
5. Fresh agricultural and meat produce sold at these multi-brand retail shops can be unbranded.
However, there is constant lobbying from various foreign bodies forcingthe government to relax the norms for multi-brand retail. In a recent development,The UK-India Business Council has urged the Indian government to have a fresh look on FDI norms pertaining to multi-brand retail where many foreign companies are keen to invest.
UK-based Tesco is only retailer as of now, which has the approval to open retail stores under multi-brand retail policy. The approval was sanctioned under the Congress led UPA Government.