An international company hoping to introduce its brand into India, directly or through the franchise route, may soon have to first invest in the country. A proposed move by the government will put a spoke in the blueprints of a large number of foreign retail companies planning to licence their popular brands to Indian firms.
This was being done to stop companies using the franchisee route from circumventing government policy on single-brand and multi-brand retail, a government official said. The government is of the view that domestic firms entering into franchisee agreements with international companies to bring multiple brands and products into the country nullifies the very objective of foreign investment restrictions in the retail sector.
Present norms allow franchising of brands by Indian companies. But in light of the increased interest shown by international brands in India, the government wants to bring in additional safeguards to prevent misuse. India allows 51% foreign direct investment (FDI) in single-brand retailing, while 100% FDI is allowed in wholesale trading.
However, the government is yet to take a call on the minimum level of investment, in terms of amount as well as shareholding that the international company will have to take in an Indian firm. ?There have been a number of cases where companies are using the franchise route to enter India. The government wants these companies to invest in India,? said an official.
The issue came up for consideration when a number of Indian companies came up with proposals to bring brands like Starbucks, Nike and Hugo Boss, among others, to India. At the same time, a global retail major like Wal-Mart has tied up with the Bharti Group to enter India through a franchise model without actually investing in the Indian company?s retail venture.
The government is also considering an either/or option of increasing the FDI in single-brand retail to 100% or allowing 49% FDI in multi-brand retail. While this will require political consensus, sources said, it would make retail market very attractive to overseas investors.