In the first step towards opening up of the retail trade in the country to foreign investors, the Government on Tuesday notified 100 per cent foreign direct investment (FDI) in single brand retail opening decks for setting up shop by global retail chains like Adidas, Louis Vuitton, Armani and Gucci to have full ownership of their India operations.
However, the notification comes with some riders to protect the interests of the small and medium scale units in the country. "Foreign Direct Investment (FDI), up to 100 per cent , under the government approval route, would be permitted in single brand product retail trading," according to an official note issued by the Department of Industrial Policy and Promotion (DIPP).
The notification issued on Tuesday states that in respect of proposals involving FDI beyond 51 per cent, the mandatory sourcing of at least 30 per cent would have to be done from the domestic small and cottage industries which have a maximum investment in plant and machinery of $1 million (about Rs. 5 crore).
Commerce and Industry Minister, Anand Sharma said the Cabinet took a conscious decision on November 24 to liberalise policy for FDI in single brand retail. FDI in single brand has led to emergence of some global majors in Indian market. "We have now allowed FDI up to 100 percent with the stipulation that in respect of proposals involving FDI beyond 51 per cent there will be mandatory sourcing of at least 30 per cent of the total value of the products sold would have to be done from Indian ‘small industries/village and cottage industries, artisans and craftsmen, This step will provide stimulus to domestic manufacturing value addition and help in technical upgradation of our local small industry," Mr. Sharma remarked.
At present, for single-brand retailers, 51 per cent FDI is permitted. Removal of investment cap would help global fashion brands especially from Italy, US and Europe to strengthen their interest in the growing Indian market. Many big names have already set up their operations in the country by partnering with Indian partners.
The new policy would allow them to buy out the domestic partners. The government said the move which comes into effect immediately would enhance competitiveness of Indian enterprises through access to global design, technologies and management practices.
The riders proposed in the notification states that products by the global chains should be of single brand only and be sold under the same brand internationally. Single brand retailing would cover products which are branded during manufacturing and the foreign investor should be owner of the brand.
Though 51 per cent FDI in single brand was allowed in February 2006, not much investment has come in the sector. During last three and half years, FDI worth only Rs. 196 crore was received in the sector.