Single-brand retail could see 100 percent FDI soon

New Delhi: The government is considering opening fully the single-brand retail sector to foreign direct investors (FDI), raising the FDI limit to 100 percent from 51 percent, industry secretary RP Singh said on Monday.

“It is under consideration,” RP Singh told Reuters by phone, declining to provide any time frame.

India currently allows 51 percent FDI in single-brand retail and 100 percent in wholesale operations. The government has considered allowing foreign firms to invest in supermarkets, but lack of political consensus and concerns of small-shop owners have so far prevented the move.

The FDI limit relaxation however comes with riders as norms have been tightened for the sector, the Economic Times reported.Foreign investors who plan to start retail operations in India will necessarily have to own the brand from now. This will ensure that franchisees of brands do not take undue advantage of the liberal investment regime.

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The news has generated excitement among foreign players like Walmart and Carrefour, waiting to pool in more fund into India to expand their businesses.

Full ownership will also allow players to start their own ventures as they do not have to enter into a partnership with Indian firms as is the case right now.

Key economic policy changes, from tax reform to lifting investment caps in the banking and insurance sectors, are seen as crucial to maintaining the momentum of one of the world’s fastest growing economies.

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The industry secretary had last week dismissed talk that the supermarket reform was on the backburner, telling Reuters in an interview that it was moving “very fast” although fears of job losses in the unorganised retail needed to be addressed.

Foreign retailers such as Wal-Mart, Carrefour SA, Tesco Plc and Metro AG see India’s 1.2 billion population as one of the world’s last largely untapped markets.

The move is seen by many in government as crucial to tame high food prices, but the plan has not yet been approved by the cabinet, with job-loss concerns ahead of state elections next year and a general election in 2014 slowing policy.

Currently, up to 40 percent of India’s harvests rot because of inadequate cold storage and supply bottlenecks, a situation some economists say foreign money in supermarkets will help resolve.

A committee of top civil servants, of which RP Singh was a member, in July agreed to recommend to the cabinet allowing foreign firms to take a 51 percent stake in multi-brand retail operations.

With inputs from Reuters