Indian retail FDI – the saga continues

Up to now, foreign retailers have only been able to enter India with majority owned businesses if they are selling their own branded products – multiple brand vendors always needed to be in a minority partnership with an Indian partner.

Now that has changed, with the passing by the Indian government of a retail industry FDI act allowing foreign retailers to own 51 percent of their Indian enterprises (which would most likely come from acquisition in the early stages).

The government tried to introduce FDI earlier this year, but was forced to retreat in the face of raucous opposition protests and coordinated street demonstrations. Now the cabinet has summoned the courage to try again, and this time it looks like it will stick.

But to get it through parliament a number of loopholes have been inserted which could fatally weaken the new law.

Most importantly, the government has given each state an effective veto over FDI in its own jurisdiction. So far just a handful of states have announced they will sign up, including Metropolitan Delhi. Throughout India, however, opposition is growing, most ominously in key states such as West Bengal and Punjab, which have announced implacable opposition to retail FDI.

Making this situation worse, another clause in the bill means foreign-owned multi-brand retailers can only set up in cities with 1 million or more inhabitants. There are 53 such cities in India, but only 16 in states which have signed up to FDI.

So we may yet see the first Walmart, Carrefours or Tesco PLC in India, bringing with them the complex supply chains of the major global brands. But how keen will they be to come to India in the face of mass popular hostility, whipped up by India’s famously fractious opposition? On the other hand, can they afford not to be selling to one of the world’s youngest, biggest and fastest growing populations of middle class shoppers?

Andy Thomas, group managing editor, L&L