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Event Update
Some relief; hopeful of better news to follow…
On Tuesday, the Government notified its decision to allow 100% foreign
direct investment (FDI) in single brand retail (under the approval route).
This move frees up the 51% limit on foreign direct investment in single
brand retail. While this move has come with certain riders and has been
positively received by the industry, retailers still await the big move of
opening up of FDI in the multi-brand retail segment.
FDI in retail - Indian saga!
Exhibit 1: The journey thus far...
Year Event
1997
FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the
government approval route
FDI in single brand retail (to the extent of 51%) was permitted
FDI in cash and carry wholesale trading was brought under the automatic route
2010 DIPP floated a discussion paper to open up FDI in multi-brand retail
Nov-11
Approval for 51% FDI in multi-brand retail and relaxation of the 51% (to 100%) norm for single-brand
retail
Dec-11 The above decision was put on hold due to opposition from political parties
Jan-12 100% FDI in single brand retail allowed, under the government approval route
2006
Source: ICICIdirect.com Research
After facing severe opposition to the opening up of multi-brand retail to
FDI in November 2011, the government has decided to take one step at a
time and decided to allow 100% FDI in single brand retail. This further
raises hopes of opening up of the multi-brand retail segment also.
However, nothing is expected until the elections are completed. With this
move, foreign retailers will be able to come and set up shops in India with
full ownership being in their control.
The riders
• Products to be sold should be of a single brand only;
• Products should be sold under the same brand internationally;
• Single brand retailing would cover only products, which are
branded during manufacturing;
• The foreign investor should be the owner of the brand;
• With respect to proposals involving FDI beyond 51%, mandatory
sourcing of at least 30% of the value of products sold would have
to be done from Indian ‘small industries, artisans and craftsmen
Note: Small industries would be defined as industries that have a total investment in plant
and machinery not exceeding $1 million.
Our view
We believe that further opening up of the single brand retail clearly shows
the government’s positive intent towards bringing about reforms. We see
this as an important step towards further reforms in the multi-brand
sector as well. The move is also expected to benefit India’s small
producers as any global retailer going in for more than 51% investment
will be required to source at least 30% of their products from the Indian
small and cottage industry. While it is difficult to comment on the fate of
the existing tie-ups, we do not foresee a lot of renegotiations as some
foreign players would prefer to have an Indian partner who has a proper
understanding of the Indian retail market and consumer.
Retail sector Permissible FDI limits across formats
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Event Update
Some relief; hopeful of better news to follow…
On Tuesday, the Government notified its decision to allow 100% foreign
direct investment (FDI) in single brand retail (under the approval route).
This move frees up the 51% limit on foreign direct investment in single
brand retail. While this move has come with certain riders and has been
positively received by the industry, retailers still await the big move of
opening up of FDI in the multi-brand retail segment.
FDI in retail - Indian saga!
Exhibit 1: The journey thus far...
Year Event
1997
FDI in cash and carry wholesale trading was first permitted, to the extent of 100%, under the
government approval route
FDI in single brand retail (to the extent of 51%) was permitted
FDI in cash and carry wholesale trading was brought under the automatic route
2010 DIPP floated a discussion paper to open up FDI in multi-brand retail
Nov-11
Approval for 51% FDI in multi-brand retail and relaxation of the 51% (to 100%) norm for single-brand
retail
Dec-11 The above decision was put on hold due to opposition from political parties
Jan-12 100% FDI in single brand retail allowed, under the government approval route
2006
Source: ICICIdirect.com Research
After facing severe opposition to the opening up of multi-brand retail to
FDI in November 2011, the government has decided to take one step at a
time and decided to allow 100% FDI in single brand retail. This further
raises hopes of opening up of the multi-brand retail segment also.
However, nothing is expected until the elections are completed. With this
move, foreign retailers will be able to come and set up shops in India with
full ownership being in their control.
The riders
• Products to be sold should be of a single brand only;
• Products should be sold under the same brand internationally;
• Single brand retailing would cover only products, which are
branded during manufacturing;
• The foreign investor should be the owner of the brand;
• With respect to proposals involving FDI beyond 51%, mandatory
sourcing of at least 30% of the value of products sold would have
to be done from Indian ‘small industries, artisans and craftsmen
Note: Small industries would be defined as industries that have a total investment in plant
and machinery not exceeding $1 million.
Our view
We believe that further opening up of the single brand retail clearly shows
the government’s positive intent towards bringing about reforms. We see
this as an important step towards further reforms in the multi-brand
sector as well. The move is also expected to benefit India’s small
producers as any global retailer going in for more than 51% investment
will be required to source at least 30% of their products from the Indian
small and cottage industry. While it is difficult to comment on the fate of
the existing tie-ups, we do not foresee a lot of renegotiations as some
foreign players would prefer to have an Indian partner who has a proper
understanding of the Indian retail market and consumer.
Retail sector Permissible FDI limits across formats
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