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Business News/ Politics / Policy/  Retailers  may get foreign portfolio investor boost
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Retailers  may get foreign portfolio investor boost

NDA considering letting portfolio investors own majority stake in retail firms; DIPP circulates inter-ministerial note

The move will come as a boon to Indian retailers looking for investments as they negotiate the contours of a potentially lucrative but treacherous market. Photo: Aniruddha Chowdhury/MintPremium
The move will come as a boon to Indian retailers looking for investments as they negotiate the contours of a potentially lucrative but treacherous market. Photo: Aniruddha Chowdhury/Mint

New Delhi: The National Democratic Alliance (NDA), which is opposed to foreign direct investment (FDI) in supermarkets and department stores, or so-called multi-brand retail, is considering allowing foreign portfolio investors to own even a majority stake in retail companies.

The move could attract significant investments to the country, given the size of its retail market ($518 billion according to audit and advisory firm Deloitte’s Indian arm; 8% of this is accounted for by so-called modern or organized retail) and the growth potential (the Indian retail market is expected to grow to $750-850 billion by 2015).

The move will also come as a boon to Indian retailers looking for investments as they negotiate the contours of a potentially lucrative but treacherous market.

“We’ve been anticipating this move for a while now. The clarification will give more options to foreign investors investing in India," said Rakesh Biyani, a director at Mumbai-based retailer Future Group.

As part of its current discussions with various ministries, the department of industrial policy and promotion (DIPP), the nodal body that makes FDI policy, has proposed that the FDI ceiling of 51% in multi-brand retail trading be made a composite cap so that listed Indian supermarket chains can access foreign money from the capital market. The inter-ministerial note has been floated by DIPP with approval from commerce and industry minister Nirmala Sitharaman.

A finance ministry official, speaking on condition of anonymity, said the ministry is in favour of the proposal.

On Monday, Sitharaman said her government would not allow FDI in multi-brand retail. She said there was no urgency to withdraw the notification of allowing FDI in multi-brand retail or issue fresh clarifications since there were no proposals by foreign multi-brand chains pending before her ministry.

The Congress-led United Progressive Alliance (UPA) government in September 2012 allowed 51% FDI in multi-brand retail companies without carving out any separate ceiling for portfolio investments. Indian rules allow portfolio investors to invest up to 10% in an individual capacity and 24% in aggregate in Indian companies through the automatic route. These limits can be raised to the sectoral FDI cap subject to the investee company passing a special resolution by its board. However, lack of clarity about the policy on foreign portfolio investments in multi-brand retail has deterred companies from doing this.

Future Retail Ltd wrote to the finance ministry last year seeking permission to raise its portfolio investment limit to 49%. The finance ministry had sent the proposal to DIPP to take a view on the matter, Mint reported on 23 January.

Future Retail, in its letter to the finance ministry, a copy of which was reviewed by Mint, wrote that allowing domestic retail companies to raise the portfolio limit to 49% would provide a “level playing field to domestic retail companies like ours".

Less than 1% of its equity is currently held by foreign portfolio investors.

Akash Gupt, executive director at consulting firm PricewaterhouseCoopers, said allowing foreign portfolio investors to put money into local retail companies would help the latter. “The government is creating an enabling mechanism for the Indian retail players to grow bigger so that they can compete with foreign retail giants when they are allowed to come in."

In recent years, e-commerce in India has emerged as a proxy investment destination for foreign investors looking to buy into India’s consumer market. Since January 2012, venture capital and private equity investors, both local and foreign, have ploughed more than $3 billion into e-commerce firms, according VCCEdge and Mint research. Out of this, more than $2 billion has been invested so far in 2014.

Suneera Tandon contributed to this story.

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Published: 09 Sep 2014, 11:31 PM IST
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