News on opening up of multi-brand retail segment to foreign chains is all over the place in today’s morning newspapers. Still, I would like to address a few important points over here for the benefit of our readers as to the fine print of FDI clearance in the sector cluttered by unorganized small kirana (mom and pop) shops.
It has finally happened – India will see the foreign supermarket retail giants such as Walmart, Carrefour, Tesco Plc and others shaking to the tune of aspiring Indian consumers. Today, the organized retail market in India is estimated to be worth around $28 billion; and is projected to grow by 10 times by 2020.
The Union cabinet on Thursday cleared FDI in the multi-brand retail sector to the extent of 51% stake for the foreign retailers. That’s not all – the government also went full throttle to allow 100% FDI in single-brand retail segment, from the prevailing 51% limit, to push niche luxury brands in making further commitments in growing market of India.
However, there are no free lunches – the entry pass for the Indian disco party for the multinationals firms comes with riders to resolve certain structural inefficiencies in the supply chain; and develop post-harvest and cold chain infrastructure.
Highlights of FDI in Multi-brand Retail
- Union cabinet clears 51% for multi-brand supermarkets.
- Minimum investment from foreign retailer is $100 mn.
- At least 50% of the total FDI must be invested in ‘back-end’ infrastructure.
- Minimum 30% of the local sourcing requirements from small industries.
- Retail outlets to come up in cities with more than 1 million population
- The govt will have the first right to procure agricultural produce.
The investment needed for entering the sector has been fixed at $100 million in towns with population of more than 10 lakh as earmarked by 2011 census; half of which they need to allocate towards building back-end infrastructure and better logistical support for the exploding Indian retail sector led by burgeoning middle class population and growing consumer spending.
Furthermore, the new guidelines may commit supermarkets run by foreign retailers to strict local sourcing requirements to the extent of 30% of manufactured or processed goods from small industries. Going by the 10 lakh population threshold to open supermarkets, 53 cities that accounts for over 42% of total urban population will be eligible to have internationally renowned retail outlets.
Lastly, the cent percent opening up of single-brand retail segment will foster growth in India’s infrastructure for luxury retail markets such as jewellery, fine dining, luxurious real-estate, global branded apparels, yachts, and swanky hotels amongst other niche segment offerings.
For a change, instead of ‘Made in India’; let’s say to them ‘Welcome to India’ !