Foreign direct investment of a maximum 100% in single-brand retail could get a look-in as part of a dual-option strategy being fine-tuned by the government.
A new strategy paper prepared by the government has proposed the hike in FDI for single-brand retail. The other option is to permit 49% FDI in multi-brand retail in an effort to widen the scope of foreign investment in the sector.
The either-or option is aimed at tackling the expected political resistance to the liberalisation move. The paper, circulated among the ministries concerned, says, ?If political resistance is too strong to resist, allow 100% foreign equity in foreign-branded, specialised retail chains like luxury brands, consumer durables and semi-durables.? The government allowed 51% FDI in single-brand retail in January, 2006 but has been unable to prise open the FDI window any further.
If the government succeeds in further opening up the single-brand retail window to FDI, fashion goods retail majors like US-based GAP and France?s Zarra can then set up shops in India. They have unsuccessfully negotiated for joint venture partners, with the likes of Shoppers Stop, but have preferred to wait for 100% FDI in single-brand retail.
Even food and beverage companies like the world?s largest coffee chain, Starbucks, which is partnering Future Group?s Kishore Biyani through the franchisee route, may enter the Indian market directly without a partner. Starbucks?s application has been rejected twice by the Foreign Investment Promotion Board. Sources in the government said, even if the single-brand retail space was opened fully to foreign players, it would not signal the end of mom-and-pop shops.
This line, they felt, could be used to bargain with the Left parties to permit allowing 49% FDI in all forms of retail, paving the way for the entry of giants like Wal-Mart, Tesco and Carrefour. In retail, 100% FDI is allowed only for back-end operations like wholesale trade.
Organised retail in India is slated to grow by over 400% within the next three years and yet be less than 10% of the total global retail segment, which is estimated to be around $ 500 billion.