India: retail sector law reformed

New backtrack by the Indian government on retail sector reform in India. Last January 10, 2012, New Delhi introduced a foreign direct investment rule aimed at liberalizing the sector. The current law prepared by the government allows FDI equal to 100% in single-brand retail: thus, FDI for multi-brand retail is prohibited in India today, but up to 100% is allowed for single-brand retail. However, considering the latest vicissitudes, it is not excluded that the situation may evolve again in the coming months.

The first green light had been given on November 24 of last year, at which time New Delhi had undertaken one of the most important economic reforms in India. The law provided for the near total removal of the FDI cap, whereby foreign companies would be allowed to hold up to 100% of single-brand stores and up to 51% in multibrand (including even supermarkets). Until then, New Delhi did not allow foreign direct investment in the multibrand and allowed foreign companies up to 51% of shares in the single-brand. Following this decision, the Governments of the States of Tamil Nadu, Uttar Pradesh and West Bengal announced their firm opposition and consequently the Government of India decided to withdraw the law completely.

These are the benefits resulting from the new law in January, which will also have important repercussions from a social and economic point of view:

• Indian consumers will have more choice
• Indian retailers will be able to rely on the influx of money from abroad
• there will be the creation of new jobs and thanks to wider competition, a general lowering of prices
• there will be a modernization of the industry and logistics networks
• more transparency will be ensured, especially in the agricultural sector
• there will be a drop in inflation, a real thorn in the side of the Indian economy

Although the initial reform has been modified, this is still a historic decision that will radically change the Indian retail landscape: this sector, whose turnover is around USD 450 billion annually, is thus poised to explode.

ALSO READ:

The success of Italian companies in India

Internationalizing your business abroad: strategic choice or opportunity?

Digital export manager (DEM): internationalization in a digital context