New Delhi: Starbucks Coffee Co.’s plans to enter India could be delayed as the government is yet to be convinced about the structure of the entity through which it proposes to operate in India and whether it adheres to laws governing foreign investment, according to a ministry official who did not wish to be identified.
The laws currently allow 51% foreign direct investment in single-brand retail.
Starbucks plans to enter the country with New Horizons Retail Pvt. Ltd, a company that is owned by the American coffee chain’s Indonesian franchise V.P. Sharma and the Future Group’s Kishore Biyani, India’s top retailer. Sharma is based in Indonesia and it’s not known whether or not he holds an Indian passport.
“The concern is over the equity held by an individual which Starbucks says should not be counted towards foreign equity. For us, it is a grey area and we are still applying our minds to it. If the equity is counted as FDI (foreign direct investment), then the proposal breaches the FDI cap,” he said. Biyani is an Indian citizen.
Sharma could not be reached for comment and Biyani declined to comment.
In December, New Horizons submitted a proposal to the industry ministry asking for approval to tie up with Starbucks for setting up cafes and retail outlets for its products such as Starbucks expresso machines and branded packaged coffee. In the application, the Indian company had mentioned that the initial investment by Starbucks would be 18% which would be later increased upto 51%.
The official said the industry ministry would not send the application to the Foreign Investment Promotion Board (FIPB) in its present form.
The industry ministry is the first port of call for FDI and receives the initial applications for single brand retail outlets which need to be approved before they can set shop in the country.
Once the industry ministry cross-checks the proposal, it is fowarded to FIPB, which clears such proposals.
The government had, until March 2007, received 26 proposals for foreign investment in single brand retail of which 12 have been approved, three rejected and 11 are under consideration.
Rasul Bailay contributed to this story.