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India Approves 51% FDI In Multi-Brand Retail

The Indian government has approved a 51% FDI in multi-brand retail, allowing foreign retail players like WalMart, Tesco, and Carrefour to establish retail stores with local partners, reports NDTV. This also means that e-commerce players like Amazon would be able to operate full fledged online stores.

Currently, Amazon operates Junglee.com,  an advertising service for product ads, acting as an aggregator for Indian online retailers, pitting retailer against retailer for similar products. So it doesn’t sell products directly. Walmart was also believed to have some plans for online retail, but it was reported that it had disbanded its e-commerce team.

Conditions: However, the decision comes with a rider that multi-brand retail investment has to be approved by the state where the entity intends to set shop. We’re not sure how it will apply to e-commerce players. We assume that they’d have to set-up operations in states that approve it. According to Anand Sharma, Union Cabinet Minister in charge of Commerce and Industry and Textiles, states like Andhra Pradesh, Assam, Haryana, Delhi, Uttarakhand, Rajasthan, Manipur, J&K are inclined towards adopting FDI in multibrand FDI (via – Firstpost).

There are other conditions that International players need to fulfil:  the minimum FDI limit is $100 million, companies have to invest half of that amount  in infrastructure like cold-storage chains and warehouses, and that at least  30% of the goods to be sold will need to be sourced from local partners. The government also allows FDI in single retail with some conditions, which makes it unviable for international single brand chains like Ikea to set up operations.

Although the union cabinet had approved multi-brand FDI in November 2011, the decision on the final implementation was pending as its allies and other political parties were in opposition of the proposal.

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Note that the Indian government already allows 100% FDI in business to business e-commerce ventures, and cash and carry wholesale trading.

Lauding the government’s decision, Bharti, which operates a cash and carry venture with Wallmart has issued a statement:

Rajan Bharti Mittal, Vice-Chairman and Managing Director of Bharti Enterprises said, “This is a landmark decision in India’s economic reforms process. Development of organised retail in India will bring immense benefits to stakeholders across the value chain – from farmers to small manufacturers and above all to consumers. Enhanced investment in the sector can further the cause of employment, particularly amongst youth. In addition, this decision will open the doors for much needed technology and investments to develop the entire retail ecosystem in the country.  Bharti Walmart’s Cash & Carry venture is already sourcing fresh produce directly from thousands of farmers as well as other merchandise from local manufacturers, thereby adding to the local economy’s growth and delivering immense value benefit to its customers such as kirana stores and other institutions.”

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