Friday, January 06, 2012

Foreign Investment in India - Half Empty for Retail, But More than Half Full Overall

Our clients and contacts have been expressing concern over some backtracking on the Indian cabinet's announcement of a further expected opening to foreign investors in the retail sector. Our view is that the spat over retailing should in no way overshadow the fact that foreign investors can hold up to 100% equity in the vast majority of industry sectors, and that many of these sectors are open through a streamlined automatic approval process.

The current retail status: 51% foreign equity is allowed in "single brand" retailing (think Armani) but no foreign equity allowed in "multi-brand" retailing (think Walmart). Walmart was still able to enter India through a joint venture in back-end operations and distribution even though its Indian partner, Bharti, owns 100% of the front-end retailing.

The November announcement was that 51% foreign equity would soon be allowed in multi-brand retailing and that the 51% in single-brand would be increased to 100%.

As with many countries, retail raises sensitive political issues due to the large numbers of small local retailers (and their bigger counterparts) that feel threatened by a foreign influx of retail sales. An outcry in India after the announced liberalization caused the Indian cabinet to put the multi-brand change on hold, and the foreign and local press have been spilling a lot of ink over this.

Not ideal, though we heard today that the Indian government is still moving ahead with the change to allow 100 per cent foreign direct investment in single brand retail.

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