100% FDI nod for single brands

Political rage may have held up foreign direct investment (FDI) in multi-brand retail, but a key proposal linked to the same retail reform agenda — 100% FDI in single-brand retail — seems to have scraped through.

The government is likely to go ahead with it, since there was hardly any political opposition to it.

This means that although global supermarket giants Walmart, Tesco and Carrefour may not be able to set up deep-discount stores in India yet, others such as iconic furniture brand Ikea and apparel retailer GAP — that sell just one brand under their roofs — will gain entry.

This will pave the way for marquee brands such Prada, Ikea, GAP and sports goods majors to set up exclusive outlets, managed and owned entirely by them, in India.

In the past five years, under the current regime of 51% FDI in single-brand retail, FDI of only $44.45 million (R231 crore) came to India, constituting barely 0.03% of total FDI inflows.  

Globally, single-brand retail follows a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment. “The current cap of 51% confers a right to pass all ordinary resolutions while enhancing the cap to 100% will confer full ownership and control,” said a government official, who did not wish to be identified.

Finance minister Pranab Mukherjee’s statement on Wednesday, suspending 51% FDI in multi-brand retail, steers clear of any mention on 100% FDI in single-brand retail.

Under the new policy regime for single-brand retail, products to be sold should be of a ‘Single Brand’ only. These should be sold under the same brand internationally — implying that products should be sold under the same brand in one or more countries other than India.

BJP leaders are privately saying that single-brand retail is not as “dangerous” for the domestic retailer or producer as it pertains to niche products that do not fundamentally alter the retail market, thus showing greater flexibility on this than on multi-brand retail, which, they claim, will be a disaster.

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