By: Uttara Choudhury
Source: http://www.firstpost.com
Category: Investment In India
New York: US investors heaved a sigh of relief as the government on Tuesday formally cleared the decks for 100 percent foreign direct investment (FDI) in single-brand retail. The decision eases the entry of predominantly single-brand US retailers such as Starbucks and Gap into India’s retail market, allowing them to operate without a local partner.
It is no secret that many foreign chains, most notably Ikea, which buys a lot of furniture and furnishings from India, have not opened stores in the country because they did not want to take on Indian partners.
The rule change also raised expectations that the Manmohan Singh government might loosen restrictions on foreign multi-brand retailers, after reversing a decision last month to let the likes of Wal-Mart open supermarkets in India to appease opposition parties and waspish allies.
“The opening of India’s single-brand retail sector sends a crystal clear signal that India is open for business at a time when economic opportunity is certainly welcome amidst global uncertainty,” said Ron Somers, president of US-India Business Council (USIBC).
Somers, an Indophile who actively promoted the India-US civil nuclear energy deal in Washington, had earlier lashed out at the government for its decision to suspend plans to open India’s retail sector to foreign supermarket chains.
“While USIBC is encouraged by this lifting of FDI caps in single-brand retail, there is still much work to be done. USIBC will focus on helping companies navigate the conditions required by the Press Note, particularly concerning local sourcing, recognising India’s goal to spur local manufacturing and create employment. We will simultaneously continue to seek an opening for the multi-brand retail sector, as well,” Somers said.
Strict conditions
Still, the approval comes with some strict conditions that may be difficult for some companies to meet. Among them is a requirement that single-brand retailers buy 30 percent of the value of their products from small Indian businesses and artisans — defined as businesses and individuals that have invested less than $1 million in factories or equipment. The government is hoping the mandatory sourcing from India’s cottage industries will have a positive impact on the employment situation in India.
“We have now allowed foreign investment up to 100 percent with the stipulation that in respect of proposals involving FDI beyond 51 percent there will be mandatory sourcing of at least 30 percent of the total value of the products sold…from Indian small industries/village and cottage industries and craftsmen,” commerce and industry minister Anand Sharma said in a statement.
“This step will provide stimulus to domestic manufacturing, value addition and help in technical upgradation of our local small industry.”
The new rules also say that investors wishing to hold 100 percent of single-brand stores must own the brands that their stores sell, a provision that would preclude franchisers.
Bolstering flagging investor confidence
Prime Minister Manmohan Singh has promised he will renew the multi-brand retail initiative after regional elections this year.
“We hope the initiative is a precursor to further liberalisation in the sector in the days to come,” Rajan Bharti Mittal, managing director at Bharti Enterprises, Wal-Mart’s India partner for wholesale stores, told Bloomberg.
The government took a decision to allow 100 percent FDI in single-brand retail as it was the only way to attract serious investment. Under the current regime of 51 percent FDI in single-brand retail, a paltry $44.45 million trickled into India in the last five years. The new move will galvanise single-brand US chains like Starbucks, Gap, Banana Republic and others to enter India.
“Globally, single-brand retail follows a business model of 100 percent ownership and global majors have been reluctant to establish their presence in a restrictive policy environment,” the department of industrial policy and promotion (DIPP), said in a statement.
It stands to reason that prominent American brands like Nike, Reebok, Calvin Klein, Estée Lauder and others who already have a presence in India under various operating models may also expand their India operations after the rule change.
Source: http://www.firstpost.com/business/us-companies-happy-to-see-fdi-limit-on-single-brand-retail-go-179341.html
Source: http://www.firstpost.com
Category: Investment In India
New York: US investors heaved a sigh of relief as the government on Tuesday formally cleared the decks for 100 percent foreign direct investment (FDI) in single-brand retail. The decision eases the entry of predominantly single-brand US retailers such as Starbucks and Gap into India’s retail market, allowing them to operate without a local partner.
It is no secret that many foreign chains, most notably Ikea, which buys a lot of furniture and furnishings from India, have not opened stores in the country because they did not want to take on Indian partners.
The rule change also raised expectations that the Manmohan Singh government might loosen restrictions on foreign multi-brand retailers, after reversing a decision last month to let the likes of Wal-Mart open supermarkets in India to appease opposition parties and waspish allies.
“The opening of India’s single-brand retail sector sends a crystal clear signal that India is open for business at a time when economic opportunity is certainly welcome amidst global uncertainty,” said Ron Somers, president of US-India Business Council (USIBC).
Somers, an Indophile who actively promoted the India-US civil nuclear energy deal in Washington, had earlier lashed out at the government for its decision to suspend plans to open India’s retail sector to foreign supermarket chains.
“While USIBC is encouraged by this lifting of FDI caps in single-brand retail, there is still much work to be done. USIBC will focus on helping companies navigate the conditions required by the Press Note, particularly concerning local sourcing, recognising India’s goal to spur local manufacturing and create employment. We will simultaneously continue to seek an opening for the multi-brand retail sector, as well,” Somers said.
Strict conditions
Still, the approval comes with some strict conditions that may be difficult for some companies to meet. Among them is a requirement that single-brand retailers buy 30 percent of the value of their products from small Indian businesses and artisans — defined as businesses and individuals that have invested less than $1 million in factories or equipment. The government is hoping the mandatory sourcing from India’s cottage industries will have a positive impact on the employment situation in India.
“We have now allowed foreign investment up to 100 percent with the stipulation that in respect of proposals involving FDI beyond 51 percent there will be mandatory sourcing of at least 30 percent of the total value of the products sold…from Indian small industries/village and cottage industries and craftsmen,” commerce and industry minister Anand Sharma said in a statement.
“This step will provide stimulus to domestic manufacturing, value addition and help in technical upgradation of our local small industry.”
The new rules also say that investors wishing to hold 100 percent of single-brand stores must own the brands that their stores sell, a provision that would preclude franchisers.
Bolstering flagging investor confidence
Prime Minister Manmohan Singh has promised he will renew the multi-brand retail initiative after regional elections this year.
“We hope the initiative is a precursor to further liberalisation in the sector in the days to come,” Rajan Bharti Mittal, managing director at Bharti Enterprises, Wal-Mart’s India partner for wholesale stores, told Bloomberg.
The government took a decision to allow 100 percent FDI in single-brand retail as it was the only way to attract serious investment. Under the current regime of 51 percent FDI in single-brand retail, a paltry $44.45 million trickled into India in the last five years. The new move will galvanise single-brand US chains like Starbucks, Gap, Banana Republic and others to enter India.
“Globally, single-brand retail follows a business model of 100 percent ownership and global majors have been reluctant to establish their presence in a restrictive policy environment,” the department of industrial policy and promotion (DIPP), said in a statement.
It stands to reason that prominent American brands like Nike, Reebok, Calvin Klein, Estée Lauder and others who already have a presence in India under various operating models may also expand their India operations after the rule change.
Source: http://www.firstpost.com/business/us-companies-happy-to-see-fdi-limit-on-single-brand-retail-go-179341.html
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