FDI in multi Brand retail in India: A good or Bad move?

The government on Tuesday took the first step towards opening up the multi-brand retail sector for foreign direct investment (FDI) by releasing a discussion paper on the issue. The discussion paper is available at the website of Department of Industrial Policy & Promotion. The proposed 100 per cent FDI in multi brand retail, however, seems to be in consistency with the UPA government’s emphasis on technology up-gradation and flow of investments into the retail sector

FDI in Multi-Brand retailing is prohibited in India. FDI in Single- Brand Retailing is permitted to the extent of 51%. The discussion paper, which will be open for comments from stakeholders until July 31, does not suggest an upper limit on foreign investment in multi-brand retail. According to this discussion paper, the foreign companies in multi brands will also have to follow stringent rules on Job reservations for local youth, local sourcing requirements and make mandatory investments in local supply chain.

It is widely acknowledged that FDI can have some positive results on the economy, triggering a series of reactions that in the long run can lead to greater efficiency and improvement of living standards, apart from greater integration into the global economy. This will improve the quality of merchandise as well as improve the product availability and lower prices. Moreover, it will be a win-win situation for the customers. It can also be harnessed, to boost exports out of India through Clear Clauses of Investments in Sourcing & Exports out of India.

It has been observed by the big-wigs of retail sector that there is an urgent need to encourage foreign investment in this sector and if the policy process is strategically done, it can create a synergy between the small retailer and the larger retail chains.

Earlier attempts to open up retail trade have met with stiff resistance. A major concern is that it would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector. Another concern raised by the people opposing FDI in retail trade is that the Indian retail sector is still under-developed and in a nascent stage and it is allowed to grow and consolidate first, before opening this sector to foreign investors end.

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The opinions expressed herein are for informational purposes only. Nothing herein shall be deemed or construed to constitute legal advice or opinion.