The Indian cabinet approved 100 percent foreign direct investment in single-brand retail through the automatic route. Earlier, foreign retailers looking to invest more than 49 percent required the government’s nod.
India also allowed single-brand retailers to set off the value of goods sourced from India for their global operations against the 30 percent mandatory sourcing requirement for India operations in the first five years, according to a government press statement. Thereafter, they will be required to meet the 30 percent local sourcing norms.
The move to allow FDI through the automatic route makes little difference since most single-brand retailers like Zara, Nautica, Gant, Benetton and many others have already opened their stores in India, said Sandeep Jain, executive director at Monte Carlo Fashions. “I do not see much fresh investment coming into India because of this since most large brands have already come through the approval route.”
The only difference is they can own their shops when earlier they needed to partner with local brands, Jain said.
Rajat Wahi, partner at Deloitte India disagreed. “The move will not only attract additional foreign capital into the country, but will also provide an impetus to the retail industry growth, at a time when organised and retail is already seeing strong growth over the last 12 months,” he said in an emailed statement.
India still does not allow foreign direct investment in multi-brand retail, and Walmart Stores, Inc and Metro AG operate in the cash-and-carry segment, selling in bulk to traders and small retailers.
Shares of retailers jumped after the government’s announcement in a flat Mumbai market.