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India's FDI renewal – Extant FDI policy guidelines (FDI in Multi-Brand Retail)

Walmart In Landover Hills

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India FDI was simplified earlier in 2010 with a Consolidated  extant guidelines book replacing all press notes since 2000. Then the takeover code was also harmonized to allow for control points of 51% and above with a 25% trigger and a 26% open offer for acquirers. Consequently, as flagged at the India sites last month, FDI policy has also focused on removing control issues allowing FDI thru automatic sector/and o r thru approvals in approved sectors at no less than 50%. The proposal will upgrade FDI limits in Insurance, Defence and other sectors. Similarly, enabling provisions are being cleared for LLP structures to invest in all the approved lists except where reporting and controls are involved a.k.a 100% construction projects with utility limitations

In the same vein, FDI in retail is also much nearer final approvals today with the CoS clearing proposals without any of the attendant political compromises being earlier introduced as conditions for FDI in Multi brand retail by Walmart, Carrefour and other global players. The stores are likely to be set up in Indian towns with a population of 1 million or more

When the DIPP paper was drafted earlier this year there was a lot of consternation in investor circles as Multi Brand FDI was made likely contingent on conditions like local employment, extra permissions from States for each branded outlet, 30% turnover for small traders thru the wholesale cash and carry route and 50% investment to be routed to back end infrastructure. However the Committee of Secretaries pushed the proposal along for presumably its final approval at the Cabinet level with the first three conditions dropped and the last one monitored by self certification. BS carried its analysis as a cover story on the Weekend

Comparisons with China

China liberalised multi brand FDI in 1992, limiting no. of large players to 50 and allowed 100% FDI only in 2004. In 1992 it began with Multi Brand FDI in 6 major cities with Foreign ownership limited to 49% India is going to allow the first stores to go into all 1 million plus towns as it is further along diversification of urbanisation and that will include destinations like Agra, Rajkot, Dhanbad. Ludhiana and Vizag along with Nashik and Faridabad among others.(MEDC)

With 15 million stores, India’s retail sector is highly fragmented. Only 4 per cent outlets have more than 500 square feet space. The other 96 per cent are in the unorganised sector.

 

Challenges

However, in Pharma, where allowing 100% FDI has resulted in too many targeted acquisitions by Foreign pharma, there is still a plan to roll back FDI to below 50% to ensure an Indian footprint in the domestic market Also within multi-brand retail later constraints might be put in place to enforce protection for agriculture, small and medium sector, food processing and electronics traders/industry locally. Pepsi and Coke alongwith other Food industry producers operate under large export commitments for their permissions to operate in the country and have put in their own chains for farm produce for the company’s consumption

Growing FDI, reducing FII

Flag of Rajkot Principality until 1948

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As always, India has caught the FDI bull cycle with more than $10 bln in inflows in Q1 evenas portfolio investors get ready to leave the country with pain in their home markets after US was downgraded. India and more importantly markets in Latin America and Africa continue to keep American and European Corporations from Nestle to Coke to Big pharma profitable even as Europe and even the US follow into another recession

The number of FIIs registered with Sebi has marginally declined from 1,718 as on December 31, 2010 to 1,716 as on May 31, 2011. The number of registered sub- accounts has, however, increased from 5,503 in December 31, 2010 to 5,833 sub-accounts as on May 31, 2011. FII inflow so far this year is in contrast to last year’s trend, when robust FII inflow helped the Indian stock markets sustain momentum. In 2010, foreign investors had purchased stocks and bonds worth about Rs. 10 lakh crore, a record high for a year and nearly one-fifth of their overall investment so far.(MEDC) The debt market however continued to see large portfolio inflows of more than $3 bln in the first 5 months

The US consumer cycle

In its home markets, Big Retail is choosing smaller format stores and the highly successful eCommerce retail with products like the Kindle are going offline to become available to more consumers and extend their reach as smaller and higher end luxury stores show he way to a6% growth in retail consumption in the first half of the year. Even as Jefferson county just staved off bankruptcy and inflation stayed up, growth in Jobs post recovery at 2.5 million is seen as 5 million less than the number of Jobs needed in the Economy in the US complicating the survival of bigger retail and even digital lifestyle companies despite their record results as banks sell off international assets and the home / real estate markets hold back the economy. Thus retailers would welcome the chance to grow their footprint in India like in China in the last 2-3 years but are unlikely to find the going easy in terms of managing expectations both at home and abroad

Carrefour JB

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2 comments on “India's FDI renewal – Extant FDI policy guidelines (FDI in Multi-Brand Retail)

  1. Pingback: Our Calendar till December 2011 | The Banking and strategy Initiative | The Banking and Strategy Initiative

  2. Pingback: India ventures into Global Retail for Economic rebalancing | Advantage FDI | The Banking and Strategy Initiative

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