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India opens gates for global apparel retailers
Nov '11
After nearly sixteen years of dilly-dallying, India's Cabinet has finally decided to allow the entry of global apparel retailers and supermarket giants into the country.

The Cabinet has approved 100 percent foreign direct investment (FDI) in single-brand retail which will encourage foreign apparel retailers like Gap and H&M to set up their shops in India.

The decision to remove the existing 51 percent cap on FDI in single-brand retail formats related to lifestyle and sports goods would enable global brands like Adidas and Gucci to have complete ownership of business in India.

Simultaneously, the Cabinet has also allowed foreign retailers to own a 51 percent share in the multi-brand retail sector. This has cleared the route for global giants like Wal-Mart, Carrefour and Tesco, to open their supermarket chains in India. These firms were so far only allowed to own 100 percent of back-end cash-and-carry operations for supplying to wholesalers.

Currently, the size of India's overall retail market, including organized and unorganized, is estimated to be around US$ 550-600 billion. The opening of such a huge market to foreign investment is the biggest reform in years that would boost investment manifold in Asia's third-largest economy.

India has a rising middle-class population which still shops at local, family-owned businesses that enjoy a 90 percent market share in the retail segment.

However, the Cabinet has decided to put some restrictions while allowing 51 percent FDI in multi-brand retail. The permission to open mega stores will be limited to 53 cities with population of more than one million.

Secondly, the big retailers would have to bring in a minimum investment of USD 100 million, 50 percent of which must be in the back-end infrastructure like processing, packaging, etc.

Third, they would have to source at least 30 percent of processed and manufactured goods from small-scale units.

Even after the Central Government's nod, foreign companies would have to take requisite clearances from respective State governments for setting up their stores, as retail trade falls under the State-list in Indian Constitution.

Welcoming the Cabinet's decision, Kishore Biyani, Chief Executive Officer of Future Group, said it will be a win-win situation for everyone. While farmers will get more for their produce, consumers will get more choices at better prices, he added.

Fibre2fashion News Desk - India

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