Date:14/02/2006 URL: http://www.thehindubusinessline.com/2006/02/14/stories/2006021402540100.htm

Back Govt notifies guidelines for FDI in single brand retailing

Our Bureau

New Delhi , Feb. 13

DESPITE stiff opposition from the Left parties, the Government on Monday notified the guidelines for foreign direct investment (FDI) in single brand retail trading.

The notification states that FDI up to 51 per cent in retail trade of single brand products would cover only those that are branded during manufacturing and are sold under the same brand internationally. These stipulations would prevent third party sourcing and encourage multinationals to set up a manufacturing base in India.

Further, the notification makes it clear that FDI would be allowed only with a prior three-tier approval of the Government, for which an application seeking permission would have to be made to the Secretariat of Industrial Assistance under the Department of Industrial Policy and Promotion (DIPP), before being considered by the Foreign Investment Promotion Board. The applications will have to specifically indicate the product/product categories that are proposed to be sold under the single brand, with additional products or product categories requiring fresh approval.

The notification reiterates that the move is "aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices."

The DIPP, through Press Note 3 of 2006, states that these guidelines come into force with immediate effect.

Meanwhile, the notification evoked varied reactions from the retail industry. Mr Krish Iyer, Managing Director and CEO of Piramyd Retail Ltd, felt that 51 per cent in retail is "not exciting enough" as many brands are already present in India through the franchisee route.

Echoing similar sentiments, Mr Andreas Gellner, Managing Director, Adidas India, said, "Unless 100 per cent FDI is allowed, the current liberalisation would not have the desired effect." He felt that the current cap would not bring in the "tidal wave" of companies, which are keen on catering to the Indian market. "In spite of allowing 51 per cent in retail, companies need to look out for a local partner, which is not an easy process."

However, Mr Iyer felt that opening up of the retail sector would not just see premium-end luxury brands setting up shops in India, but also mid-range mass appeal brands entering the country. "Although there would be no significant strategic investment by foreigners (post allowing FDI in retail), it will lead to employment generation as the whole sector gets a boost," Mr Vijay Jain, CEO of Orra Diamonds, said.