New Delhi: The government could allow foreign single-brand retailers to invest more than the current limit of 51% in their Indian operations, Kamal Nath, minister for commerce and industry, said at the Mint Hindustan Times Luxury Conference here on Friday.
It will look to raise the limit to 100% in single-brand retail and will seek to allow foreign direct investment (FDI) in multi-brand retail in the next five years, Gopal Pillai, secretary of commerce said at the same conference. “Five years from now, there will be 100% FDI in single-brand retail and foreign investment would be allowed in multi-brand retail. It is going to be there,” Pillai said. “It is going to happen in stages and gradually. We will be steadily and consistently liberalizing the economy.”
Nath said a Union government commissioned report on the impact of organized retail on small retailers could be out within a fortnight and is likely to find that allowing FDI in single-brand retail does not hurt small retailers. It will then consider a proposal to up the limit for FDI in this segment. “We want to protect the mom and pop shop, but we also need to find a job for the son, daughter and niece,” he said.
The report, however, was not commissioned to study the impact of single-brand retail on small retailers. It was commissioned a year ago after small vendors complained that organized retail chains would eat into their business and was to find out if this could indeed be the case. The study was done by the Indian Council for Research on International Economic Relations (Icrier) — a New Delhi think tank.
Late last year, Mint reported on the as yet unreleased findings of the study that is complete; the findings showed that sales and profits of small stores were indeed affected in the neighbourhoods where big stores are present. The study found that stores located within a 2-5km radius of supermarkets witnessed a 16% decline in sales. In contrast, those not near the supermarkets saw their sales go up 2%.
Open arms: Commerce minister Kamal Nath at the Mint Hindustan Times Luxury Conference.
Hardly any small stores stock foreign lifestyle and clothing brands and as such there haven’t been any protests to keep overseas investors out of single-brand retailing where they are allowed majority ownership anyway.
Several foreign brands, including Calvin Klein, French Connection, Gas, Armani and Jimmy Choo, have set up stores in India through this route of joint ownership, but several have also passed on the India opportunity or are sitting on the fence because of difficulties in finding a local partner or because it is against their corporate philosophy to share equity, said Hemant Kalbag, who heads the retail practice at AT Kearney, a management consulting firm.
Current regulations force retailers to forge partnerships, which they may not do elsewhere in the world, said Harminder Sahni, chief executive of KSA Technopak Advisors, a retail consulting firm. “Anything between 51% and 100% would make no difference at all,” he said. Both Sahni and Kalbag said that allowing 100% FDI would lead to several retailers looking more closely at entering the Indian market.
“We are not opposed to foreign investment in single- brand retail,” Dharmendra Kumar, director of India FDI Watch, an anti-foreign retail lobbying group, said. “But we will not allow even 1% foreign ownership in multi-brand retail. Single-brand would affect a few small retailers, but multi- brand would affect millions.”
“We are dissecting and bisecting retail to get over this fear of the unknown,” said Nath, who also suggested that the government could allow FDI in sports goods, electronics and stationery retail.
“The government is thinking in the right direction,” said Gibson Vedmani, CEO of Retailers Association of India, a retail industry body. “It should look to open foreign investment in non-sensitive areas.”