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FDI in Indian Retail : The Major Roadblock

Late last november India announced its policy to allow upto 51% FDI in Multi Brand Retail (MBRT) and Upto 100% FDI in Single Brand Retail (SBRT). After facing stiff opposition from various political parties and other sections,the Indian Government has decided to put on hold the FDI in MBRT segment.

It still has gone ahead with the decision on allwing 100% FDI in Single Brand Retailing. Though this is not sufficient for FDI in Indian Retail as a whole it still is better than the status-quo. This should attract lot of Multi National Brands to open shops in India and can give a boost to FDI flows in India. But the situation is not that rosy it seems.

The reasons for Indian Government’s decision to open up Indian Retail are many. The major reasons are

  • To contain inflation by allowing inflow of FDI and spur GDP growth which is expected to fall back.
  • To stop the free fall of Rupee value.
  • To bring in foreign retailers in a hope to improve the country’s poor supply chain¬†infrastructure.

While companies like Apple are mulling to open shops in India, it is not going to happen in the near future. Even though the Government has announced its decision on SBRT FDI, it might take months before its implemented taking into account various state elections in India. Even its implemented, bureaucratic roadblocks will further delay the process.

Above all the major obstacle for Retail companies planning to enter India would be the condition that 30% of the goods sold should be procured from local “small¬†industries”. This might make some companies think twice or delay or even shelve their entry like in IKEA’s case.¬†With foreign companies already having brands based on goods procured from established partners and enterprises the 30% condition might be difficult to implement.

This still doesn’t mean the companies are going to walk away from lucrative Indian market which has a burgeoning middle class with disposable income. They are going to pressurize the Indian government to ease the conditions that will be beneficial for them. Either way its going to take months before we see foreign brand shops in India.

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