India changes FDI rules… again

India’s government has again changed direction on Foreign Direct Investment in retailing, clearing the way for 51 per cent overseas ownership in multi-brand retail stores.

The decision has been met with both praise and criticism and represents the third change of policy in less than a year.

Shoppers will be the biggest winners, analysts argue, benefitting from world class service and competitive prices.

The change is also likely to benefit the real estate sector where developers were finding it difficult to tenant space in mall developments.

Analysts say the economy in general will gain momentum from the injection of foreign investment and skills, improved supply chain management, better logistics and warehousing facilities, and potentially higher returns to farmers.

A foreign retailer needs to invest a minimum of US$100 million to take advantage of the new rule and half of that must be invested in infrastructure.

But opponents fear the move will harm India’s small-scale industries and manufacturers who could be forced out of the market, with jobs lost to cheaper production sites like China.

Large international retailers like Walmart and Tesco, which already have stores in India through collaborations with local retailers, will welcomed the move, which they have lobbied aggressively for for some years.

Walmart said the development will benefit not only the multi-brand retailers like them but also the farmers and consumers as well.

“It will lower the price of products, improve the livelihoods of farmers and ease supply-side inflation,” said Walmart.

“Tesco welcomes this positive development but we await further detail on the conditions, we are hopeful that it will allow more Indian consumers, businesses and communities to benefit from world-class retail investment,” the UK retailer said in a statement.

Garments Exporters Association, through its president Rakesh Vaid, also welcomed the decision.

“The retail sector is fragmented and needs fresh technological inputs,” he said.

Vaid pointed out that this is one of the boldest and much-needed reform that the government has initiated despite political opposition. He hopes it will encourage a surge in foreign investment in back-end operations and infrastructure for modern retail stores.

Allowing 51 per cent FDI in multi-brand retail may attract between US$2 and $3 billion in foreign investment during the next two years, estimates management consulting firm Tecnova.

GB

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