Government of India has waved a green flag by opening gates to foreign investment in its retail sector. After months of delay, the Government has allowed up to 51 per cent foreign direct investment (FDI) in multi-brand retail in a big economic reform that could see a flood of foreign investments into the country, reports Reuters.
Allowing foreign investment will pave way for multi-national chains such as Amazon, Walmart, Carrefour and Tesco and to set up shop in India.
India’s retail industry, which is pegged at $450 billion, could expand manifold with the opening up of FDI. The decision could potentially be a game-changer for India's retail market, which is dominated by neighbourhood stores.
The Government has laid some conditions on the FDI. It clearly says that approval should be taken from the Foreign Investment Promotion Board (FIPB) for investments. Further, it says the foreign investor should make a minimum investment of $100 million, 50 per cent of which should be invested in “back-end infrastructure”.
“We are grateful that the government has realised and appreciated the value that we will bring to strengthen the Indian economy. This policy change will allow us to connect directly with the consumer and help save them money”, Rajan Bharti Mittal, VC and MD, Bharti Enterprises told Reuters.
The cabinet also decided that overseas retailers setting up a single brand store in India must source at least 30% of their goods from Indian companies, preferably from micro, small and medium enterprises (MSMEs).
The guidelines suggest that any multi brand entity should have an investment of $100 million (Rs 500 crore) and the stores can be opened up only where the population is more than 10 lakh as per 2011 Census. There are 51 cities with a population of more than one million, based on 2011 Census.
It also states that the retail sales outlets may be set up in those States which have agreed or will agree in future to allow FDI in multi-brand retail under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act.
Those who are opposing FDI in retail on the grounds that lakhs of small traders will lose out are making big mistake.Even when modern retail started in India there was hullabaloo that the mom-and-pop stores will be wiped away. This has been proven to be wrong.
FDI will further increase employment opportunities in various sectors like retail, finance, operations and supply chain management.
According to latest report by Assochom and Forrester the Indian e-commerce revenues in India will increase from USD 1.6 billion in 2012 to $ 8.8 billion in 2016. The latest FDI policy will further change the e-commerce picture. Indian e-commerce giants like Flipkart, Snapdeal and others will face stiff competition if foreign giants like Tesco and Walmart will enter India.
Currently, Amazon already has a wider reach in India with Junglee, says a comScore report. Also, a large number of e-commerce start-ups are already appealed to foreign VCs and investors. We will have to wait and see if Walmart and Amazon will take the lead on entering Indian markets with 51% of investment.
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