India’s retail market, which is valued approximately at USD 400 billion, and has amongst the largest consumer bases in the world, got a major boost yesterday when the Government of India ultimately allowed foreign direct investment (“FDI”) in the multi-brand retail sector.
The Cabinet, on 24 November 2011, approved 51% FDI in multi-brand retail and 100% FDI in single brand retail. FDI in retail sector was first introduced in 2006 when the government allowed 51% FDI, subject to government approval, in single brand retail.
The approval of FDI in the multi-brand retail sector comes with some riders. Some of them are as follows:
- The minimum investment amount per project in multi-brand retail would be USD 100 million.
- Sales centres are only allowed to be set up in cities with population of more than one million.
- 50% of the investment in required to be allocated in back end infrastructure.
- 30% of the inputs are required to be sourced from medium and small enterprises
(These riders appear in news sources. There has been no official press release and we will update this as we receive more information.)
The riders aim to protect the interest of Indian small business owners. The minimum investment size would ensure that only the serious players would make the move into India. Mandatory investment in rural areas and back end infrastructure are expected to develop rural infrastructure and create job opportunities in the rural areas. The small and medium enterprises would also benefit from mandatory requirement on the foreign retailers to purchase a percentage of the inputs from them.
The liberalization of multi-brand retail would be welcomed by the national and international companies, especially those in the retail sector. Indian retail companies can now expect significant interest in their operations from an investment/ joint venture perspective. International brands can now access the lucrative Indian consumer market.
We expect significant interest in this sector in the coming months.