The Indian Government has relaxed its regulations in relation to foreign direct investment (FDI) in multi-brand retail, however multinational conglomerates such as Walmart and Carrefour are unlikely to invest in the market for at least another six months, according to media reports.
“Multi-brand retail business requires quite a large investment,” Anis Chakravarty, a senior director at Deloitte India, told the Indo-Asian News Service. “I think retailers will prefer waiting to see more clarity.”
On 1 August the government announced it was diluting its contentious FDI policy, which caps foreign investment at 51 per cent in multi-brand retail.
While this cap has not been raised under the revised regulations, conditions relating to the mandatory 50 per cent investment in back-end infrastructure have been amended.Foreign retailers will still have to spend 50 per cent of their funds in back-end infrastructure but only in respect to the US$100m they are required to invest upon their entry into the market.
The government has also amended a ruling that requires foreign multi-brand retailers to source 30 per cent of their stock from small Indian firms.The definition of small has been modified to allow what the government refers to as “medium” sized enterprises and co-operatives to be counted under the sourcing requirement.
The revised policy also gives state governments the power to allow FDI-funded multi-brand retail stores in cities of their choice, opposed to those with populations of more than 1m residents under the current policy.
The news comes after leading global retail chains such as Walmart, Tesco and Carrefour met with Indian Commerce and Industry Ministry members in June to discuss a stagnant nine months for investment in the retail sector. Praveen Khandelwal, secretary general of the Confederation of All India Traders, said the government was bowing to the retailer’s pressure, despite long-term commitments to the market yet to made.
“Despite all these changes, I don’t think any global retailers will come to India before the next general election,” Khandelwal said.
