New Delhi/Mumbai: The government on Tuesday formally cleared the decks for 100% foreign direct investment (FDI) in single-brand retail and consequently set the stage for global retail firms such as Ikea, Louis Vuitton, Cartier, Armani and Rolex to roll out investments to open fully-owned stores in India.

The Indian cabinet had cleared the proposal on 24 November along with 51% FDI in multi-brand retail. However, in the face of intense criticism, from within and outside the coalition, it put the liberalization in foreign investment rules in multi-brand retail on hold.

The department of industrial policy and promotion (DIPP) in a press note said foreign investment in single-brand product retail trading is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.

“We have now allowed foreign investment up to 100% with the stipulation that in respect of proposals involving FDI beyond 51% there will be mandatory sourcing of at least 30% of the total value of the products sold...from Indian small industries/village and cottage industries, artisans and craftsmen,” commerce and industry minister Anand Sharma said in a statement. “This step will provide stimulus to domestic manufacturing, value addition and help in technical upgradation of our local small industry.”

Small industries have been defined as those with a total investment in plant and machinery not exceeding $1 million (Rs 5 crore).

In the last five years, under the current regime of 51% FDI in single-brand retail, only $44.45 million has come into the country, constituting barely 0.03% of total such 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,” DIPP had earlier said in a statement.

When asked how much FDI is expected as a result of this decision, DIPP secretary P.K. Chaudhery said: “We don’t take policy decisions targeting FDI inflows. But we expect billions of dollars to be invested in India as a result of this decision.”

Applications for single-brand retail have to be made to the secretariat for industrial assistance in DIPP. The application has to indicate product and product categories proposed to be sold, DIPP said. “Any addition to the product or product categories to be sold under ‘single brand’ would require fresh approval,” it said.

While applications will be processed by DIPP to determine whether the products proposed to be sold satisfy the notified guidelines, the Foreign Investment Promotion Board will take a final call on the matter.

Rajan Mittal, vice-chairman and managing director of Bharti Enterprises Ltd, welcomed the move and said it had a clear potential to lift the general mood of the economy. “Increased investments by foreign single-brand retailers will not only help improve consumer choice but also enhance competitiveness of Indian enterprises through access to global designs, technologies and management practices,” he said in a release.

The mandatory sourcing of at least 30% of the value of products sold from the small and cottage industry sector will have a positive impact on the employment situation in the country. “We hope the initiative is a precursor to further liberalization in the sector in the days to come,” he added.

Separately, data released by DIPP on Tuesday showed FDI in India went up by an impressive 56% to $2.53 billion in November, signalling improvement in investor sentiment. The cumulative flows of $22.83 billion for April-November exceed the $19.43 billion FDI for the full 2010-11 fiscal.

After failing to garner enough support, the government has started the consultation process with various stakeholders all over again for allowing FDI in multi-brand retail. A DIPP official, on condition of anonymity, said the consultation process will be completed by the end of this month. “We have already completed consultation with small-scale industries, retailers and farmers. On 12 January, we will meet consumer organizations to hear their views,” he added.

Single-brand retail currently accounts for 25-30% of the $26 billion organized retail market in India and will grow to about $20-25 billion in five years, according to Technopak Advisors Pvt. Ltd, a retail consultancy firm.

The move to allow 100% FDI in the segment will see realignment in some of the international brand franchises and joint-venture partnerships, and some new brands may come in, said Saloni Nangia, president of Technopak.

Sanjay Kapoor, managing director of Genesis Luxury Fashion Pvt. Ltd, which distributes luxury brands such as Jimmy Choo, Canali and Bottega Veneta in India, expects the bigger brands would want to come in on their own.

“I think a few brands that have not come in yet might be tempted to do so with 100% FDI. But that itself will not affect the industry much,” he said.

Kapoor is of the opinion that international brands would want a local partner to help them navigate the Indian market.

“Some brands that want full control will obviously do so, but that is the exception rather than the rule. Also, it’s really the larger brands that want the same and will do so.”

The step is a welcome one, said Rakesh Biyani, chief executive officer (CEO) of Pantaloon Retail (India) Ltd, which has partnerships with stationery retailer Staples Inc. and footwear retailer C&J Clark International.

Biyani, however, declined to comment on any possible restructuring of existing partnerships. “It’s a bit too early to say. We’ve not yet had any discussions,” he said.

Some of the clauses could be deal breakers, according to Abhay Gupta, executive director of Blues Clothing Co., a New Delhi-based retailer of high-end apparel labels such as Versace and Corneliani.

A long-drawn clearance process and 30% sourcing from small enterprises may discourage many from entering India, he said. Additionally, some single-brand retailers like Apple Inc. sell allied products such as speakers and accessories made by other manufacturers at their stores, which may not be allowed under the rules for 100% FDI.

International brands won’t find it easy to start operations in India, said Kumar Rajagopalan, CEO of Retailers Association of India, an industry body that represents local retailers. Moreover, a large number of fashion and luxury brands are already present in India either through franchises, silent partnerships or joint ventures.

“The 100% FDI in single-brand retail does not really change anything for the industry,” said Darshan Mehta, CEO of Reliance Brands, a 100% subsidiary of Reliance Retail Ltd, which has joint ventures with fashion and luxury brands such as Diesel and Zegna. “The brands that want to be in India are already here. We don’t expect any of our partnerships to be renegotiated and, in fact, will soon make announcements of new joint ventures.”

asit.m@livemint.com

PTI contributed to this story.