'Tough riders for FDI in multi-brand retail'

Sep 17 2012, 10:42 IST
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Most analysts concede that the conditions proposed for multi-brand retail in India are among the most stringent globally.   (Photo: Reuters) Most analysts concede that the conditions proposed for multi-brand retail in India are among the most stringent globally. (Photo: Reuters)
SummaryIndia’s law among most stringent globally: Experts

The government’s proposal to permit FDI in multi-brand retail trading has several riders built in as safeguards, broadly in line with the trend globally, where retail continues to be a tightly regulated sector. But most analysts concede that the conditions proposed for multi-brand retail in India are among the most stringent globally.

In most emerging market economies, the process of liberalisation started in the early nineties, with China opening its retail sector in 1992, Brazil, Mexico and Argentina in 1994 and Indonesia in 1998.

According to Indian Council for Research on International Economic Relations (ICRIER) data, many countries, including China, have opened up the retail sector in a phased manner, with Japan first allowing FDI in specific retail formats such as speciality stores and then gradually expanding it to hypermarkets and supermarkets.

In some countries, FDI in retail is allowed subject to conditions such as partnership and investment requirements, such as in Sri Lanka, where FDI is not permitted in retail trade for investments of less than $1 million (or $150,000 in the case of international brands and franchises).

In the Philippines, foreign investment in retail enterprises is permitted if it meets several requirements such as paid-up capital is $2.5 million or more; a $830,000 minimum investment per store; the parent company having a net worth of over $200 million; and the retailer owning at least five retail stores elsewhere or at least one outlet with capitalisation of at least $25 million.

Apart from FDI restrictions, countries have imposed several regulations that can vary across regions within the same country. For instance, countries like Japan, China, Singapore, Italy and France impose zoning restrictions on retailers. In China, domestic companies are treated more favorably than foreign companies in zoning and urban development requirements. In France and Vietnam there is an Economic Need Test which examines the requirement for a retail outlet, according to an ICRIER study.

In Japan, there is a law concerning the Adjustment of Retail Business Operations of Large-Scale Retail Stores, which regulates the operation of organised retail outlets in order to ensure that small and medium scale retailers operating within vicinity of large enterprises enjoy reasonable opportunities for business.

Some countries require foreign retailers to source locally or enter in partnership with domestic enterprises, while in other, they face product specific restrictions. There are stringent labour-related regulations in some nations while in Austria, Czech Republic, France, Hungary, Italy and Korea there are nationality

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