On Thursday, in a two-hour meeting chaired by Prime Minister Manmohan Singh, the Indian Government allowed 51% foreign direct investment (FDI) in multi-brand retail as well as 100% FDI in single brand retail.
The cabinet also cleared the new companies bill that is aimed at overhauling corporate governance norms. The FDI clearance comes with several caveats to address fears of small traders that giant global chains will drive them out of business and throw millions out of jobs. Foreign chains like Walmart already have a presence in India in the cash and carry (wholesale) sector.
Hindustan Times had reported on November 18 that the government was likely to clear FDI in mutli-brand retail, among other measures, to counter perceptions of political drift and policy paralysis. The Congress also possibly sees this as signal to the urban middle classes who will be the main beneficiaries of an expansion of organised retail. This class has turned hostile to the government on the issue of graft and prices.
"This is a bold and significant move. It will redefine India’s supply chain infrastructure and bring down prices," said Raj Jain, Walmart India managing director and CEO. "The consumer will gain from lower prices," said Kishore Biyani, founder and group CEO of Future Group that runs Big Bazaar and other stores. "The farmers will gain as retailers will offer them higher prices for their produce. Small entrepreneurs will benefit as 30% of all products will have to be sourced from them," added Biyani
Sitaram Yechury of the CPM, however, nuanced his criticism. He said FDI was acceptable only if it fulfilled three conditions: "generating employment, enhancing capacities and bringing new technologies. FDI in retail may bring just the first". The ease of legislation on FDI will have a very positive impact on the luxury retail sector, CPP estimates that turnover of multi-brand luxury retail, especially fashion and accessories will increase by at least 30%, once the new FDI legislation is implemented.
CPP Luxury Industry Management Consultants Ltd has been actively covering India, being the only international specialized luxury consultancy present in India.
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