Indian policy on 51% FDI in multi-brand retail simplified

22 Sep '12

6 min read

It further clarifies that companies with FDI cannot undertake single-brand retail trading through e-commerce.

• If you are an international brand entering India and do not wish to have an Indian joint venture partner, then you need to evolve a sourcing strategy along with your Indian market retail strategy and obtain necessary government approvals.

• You may also be looking at acquiring your existing licensee or franchisee in India. Therefore you will need to additionally undertake due diligence, valuation and evolve a transaction structure.

• If you already have an existing joint venture in India, you may be looking at exiting the Indian joint venture partner and hold your Indian retail operations in entirety. You will need to address issues relating to sourcing strategy, exit valuation, tax structuring and obtain necessary government approvals.

• You may be a homegrown international brand looking at realising value in your existing retail business or raising new funds to drive your future growth.

With India poised to become the fifth largest consumer market globally by 2020, the country has become integral to the growth plans of all global retailers and brands. Strong macroeconomic fundamentals and India’s demographic advantages (e.g., a 350-million strong middle class, a large youth population where 50% are under 25, rising income and aspiration levels, etc.) also support the structural growth of India’s retail sector.

The market size is estimated at around US $500-520 billion. Organized retail currently has a penetration of about 6 - 8%. However it is anticipated to grow at five-year CAGR of 19-20%. The low penetration of organised retail indicates that strong growth potential exists for modern trade players.

The demand drivers include - rising income levels, increased urbanization, growing aspiration levels and appetite to experiment and easy credit availability. The supply drivers include - new entrants, expansion plans of existing players, infrastructure augmentation and emergence of new categories

The retail market is expected to reach US $1.3-1.5 trillion by 2020. Organised retail is expected to grow at a CAGR of 15 to 20%, outperforming the overall retail sales growth of 12 to 14% from 2009 to 2014.

Fibre2fashion News Desk - India

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