The Union
Cabinet has suspended the 51% FDI in multi-brand retail and raised the cap on
FDI in single-brand retail from 51% to 100%.
- Growth of the Retail sector
in India - Improvement in Retail capability building
About 5-7 years back, the industry was expected to
grow at a much faster rate than what it actually has. Lack of retail experience
& capability has been one of the primary reasons for this subdued growth.
FDI in retail will make way for inflow of knowledge from international experts
which can give boost to the overall growth of the industry. Capability building
apart from financial investments is extremely important for the industry.
- Push to Infrastructure -
Improvement in management of supply chain
FDI in retail will boost investment in
infrastructure from the retail players, 3rd party supply chain companies as
well as the Government in the back of a sophisticated front end that
international players are likely to bring. This will improve the efficiency of
the supply chain, which will bring down the wastage, increase efficiency and
reduce the overall cost to the consumer
- Push to productivity - The
Farming Community in India
Our productivity in food & agriculture is one
of the lowest in the world and there is a significant opportunity for
up-liftment of output with investment in better farming practices. FDI in
retail will mean that the farming community will have a new support group with
a common interest which is expected to give a great push to productivity.
Likely impact if there is relaxation of FDI policy
in Retail
- Single brand
This is a welcome step. FDI investment in single
brand retailing till now has just been 0.03% [Rs 204 cr / usd 44 mn] of total
FDI investments from April 2000 to September 2011. This relaxation is likely to
result in increase in FDI in retail sector, by way of either new foreign
entrants, or buy outs / increase in stake / M&A amongst existing single
brand JVs with foreign partners. We could also potentially see present
licensing / distributor / franchise arrangements being converted to either JVs
with respective foreign retailer / brands, or, foreign retailers completely buying
out the Indian licensee / franchisee / distributor.
- Multi brand
This is a welcome and historic step. This is likely
to result in increase in investments and growth in Indian retail sector, which
is ranked amongst the top retail destinations in the world. Besides new
entrants / joint ventures, this could also result in combination of existing
cash and carry operations of foreign players with retail operations of Indian
retailers, or, foreign retailer acquiring stakes in existing Indian retail
entity. Also, this could provide further options to existing Indian retail
chains / groups to raise long term capital for expansion and maybe to attract
partnerships with some global players. Also, foreign multi brand retailers, who
did not want to enter India through cash and carry operations, may now explore
Indian presence by having stake in Indian retail company
Source: ey.com/IN
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