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Wednesday 11 January 2012

100% FDI in single-brand reality now

100% FDI in single-brand reality now

NEW DELHI: The government on Tuesday notified the rules allowing 100% foreign direct investment (FDI) in single-brand retail paving the way for international furniture maker Ikea and several fashion brands such as Louis Vuitton to set up stores in the country and also boost sourcing from local manufacturers. At present, 51% FDI is permitted in this segment of retailing which was opened to foreign players almost six years ago.

Apart from the entry of new players into the market, the decision is also expected to result in several existing players who are operating via tie-ups with Indian companies to convert their existing ventures into wholly-owned subsidiaries.

On Tuesday, the government said that the Foreign Investment Promotion Board (FIPB) had cleared French retailer Christian Louboutin's proposal to set up retail chains in the country. Several global brands such as Mothercare and Marks & Spencer are already in India through the joint venture route.

The notification comes six weeks after the Union Cabinet approved the proposal and almost four weeks after the Manmohan Singh government was forced to put its plans to allow global retail chains such as Wal-Mart and Carrefour on hold in the wake of opposition from allies, opposition as well as Congress leaders. Foreign retailers that want to invest beyond 51% will need to source 30% of their goods from "Indian" small, village and cottage industries and artisans. Small industries have been defined as those where investment in plant and machinery is up to $1 million (around Rs 5 crore).

"The compliance of this condition will be ensured through self-certification by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts, which the company will be required to maintain," the department of industrial policy and promotion said in a two-page note. The rules also stipulate that these investments would need to be approved by FIPB.

"This step (30% sourcing) will provide stimulus to domestic manufacturing value addition and help in technical upgradation of our local small industry," commerce & industry minister Anand Sharma said in a statement. While India Inc seemed to agree with this view, they demanded speedier implementation of the decision to allow 51% FDI in multi-brand, something that has been in the pipeline for over a decade. "This is a welcome move with a clear potential to lift the general mood in the economy... We hope the initiative is a precursor to further liberalization in the sector in the days to come," Bharti Enterprises managing director Rajan Bharti Mittal said in a statement. Bharti group has a joint venture with Wal-Mart which is at present confined to wholesale cash-and-carry that involves sales to institutional players such as restaurants, hawkers and even retail stores. Sources in the government said that the UPA leadership was trying to evolve a consensus on multi-brand retail and a call on going ahead with the Cabinet decision is expected to be taken after the assembly elections.

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