India opens its FDI gates in multi-brand retail
Posted November 27, 2011on:
100% FDI is allowed only in the wholesale (cash & carry) market
51% FDI is allowed in Single brand retailing like Adidas, Tommy Hilfiger, etc.
FDI is not allowed in the Multi-brand retailing like TESCO, Carrefour, and WalMart
100% FDI is allowed in Single brand retailing. This means now companies like Adidas, Tommy Hilfiger are allowed to own 100% of their retail businesses in India. Earlier, they had to come with some partner like Nike entered partnering with Sierra Industrial Estate Private Limited and Bridgestone entered in partnership with ACC limited.
51% FDI is allowed in multi-brand retailing with some investment conditions to protect the kirana stores, and farmers and some mandates on back-end investments. This means retailers like TESCO, Wal-mart can set up their retail stores in India in a JV format and enter the $500 bn Indian Retail Market.
The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian partner – foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. However, there are some serious concerns that the global retailers may wash the mom and pop kirana stores of India which caused a lot of discussions in the Parliament.
Also the economic think tank of India, ICRIER has rejected the idea of opening up FDI gates, as they said it will cause harm in the long term to the small traditional retailers in India. This is a very big move by the Govt. of India, and its affects have to be seen in the next few decades.
Many think that this will help us improve the back-end infrastructure and the supply-chain which may help reduce wastage and curb inflation. However, there are other reasons to worry on how it would affect the food security for India. There are some talks that it will create 10 million jobs and it will not kill the mom-and-pop stores. One thing that is certain is that the global retailers are going to give more varied choice, value, and experience to the Indian consumers. However, will this benefit us economically in the long-term? Lets wait and watch!