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India puts 51% FDI in multi-brand retail on hold

08
Dec '11
The Indian Government has put on hold the earlier Cabinet decision to allow up to 51 percent foreign direct investment (FDI) in multi-brand retail, to buy peace with the Opposition and allies who have been disrupting the proceedings of the Parliament on the issue.

However, the Government will be moving ahead with the November 24 Cabinet decision to raise the foreign investment level for single-brand retail in India from the current 51 percent to 100 percent. This will help some of the well-known apparel single-brand firms that are keen on entry into India such as Hennes and Mauritz (Sweden), GAP (the US), Prada (Italy), and Arcadia Group (the UK).

Some global single-brand players are already in India through local partnerships. These include apparel brands like Christian Dior (France), Marks & Spencer (the UK), Canali (Italy), Zara (Spain), Louis Vuitton (France) and Jimmy Choo (the UK). For these companies, the condition of 30 percent sourcing from the small-scale sector will become applicable the moment their foreign equity exceeds 51 percent.

The 30 percent sourcing from the small-scale sector will also be applicable to new single-brand retail companies entering India with more than 51 percent share, under the latest decision.

Meanwhile, the Government has not announced any specific date to reconsider and take a decision regarding allowing 51 percent FDI in multi-brand retail. The proposed FDI in retail was subject to stringent conditions that included an investment of at least US$ 100 million, of which 50 percent was needed to be used on back-end infrastructure.

However, back-channel negotiations with opposition parties and other stakeholders are likely to continue in order to arrive at a consensus decision. Some sections of the industry have already suggested allowing 49 percent FDI in multi-brand retail, instead of the earlier proposed 51 percent, to tone down the issue.

At present, FDI in cash and carry segment is permitted up to 100 percent, while no foreign investment is allowed in multi-brand retail.

Fibre2fashion News Desk - India


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