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Global retailers get a leg up with changed FDI norm

Author: Debasis Mohapatra/Thursday, January 11, 2018/Categories: FMCG & Retail

Global retailers get a leg up with changed FDI norm

Mumbai, January 11: The government’s decision to allow foreign direct investment (FDI) in single brand retail up to 100% along with easing of sourcing norm are likely to boost the retail sector in the country in the long run.

Market experts are also of the opinion that FDI flow will get a leg up as more global retailers see India as the next growth spot.  

“Overall, this is a positive move from Indian perspective as money flow in the form of FDI is likely to happen due to this decision. As FDI is generally a stable form of investment, retail sector will definitely benefit from the changed norm,” D Ravishankar, Founder Director of Brickwork Ratings told the Finapolis on Thursday.

He also said that easing of sourcing norm would suit many global retailers to procure raw material for their products.

Central government, on Wednesday, allowed 100% FDI in single brand retail via automatic route. It also eased rule on 30% mandatory local sourcing of products for five years after setting up their first store in India.  

The existing policy allows FDI in single brand retail up to 49% under automatic route with stringent sourcing norms.     

“What we have understood so far from our experience is that Indian consumer business takes a long time to be mastered. So, whichever global player comes to India has to keep this in mind that they are here for long haul,”  Ravishankar said.

He also said that this would provide domestic family firms the time to prepare for the competition through fund raising or tweaking of business strategy.

“In the past, we have seen domestic retailers effectively competing their global counterparts in Indian market. So, the concerns regarding threat to Indian retail industry is misplaced,” Ravishankar added.    

According to industry analysts, segments like fashion, beauty and personal care are likely to see maximum number entrants in the coming years. Global mobile brands like Apple along with Chinese handset makers Xiaomi and Oppo could be bigger beneficiaries of this decision. Global furniture brand IKEA is also likely to benefit from easing of sourcing norm as the company looks to expand its footprints in the country.

As per a CBRE report, the size of Indian retail market is likely to reach a whopping $1 trillion by 2020 out of which 20% will come from organized retail segment. The growth rate of organized retail is also likely to be around 25% during this period, which will be higher than the unorganized segment.

Meanwhile, small trader feel the move will facilitate big corporations while hurting small businesses. Condemning the decision, the Confederation of All India Traders (CAIT) said the step will pave the way for the foreign brands to dominate the country's retail trade.

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