The move is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices. Government guidelines for FDI in single brand retail trading.
The retail revolution, which began a few years back in the country, got a big boost when the government announced 51% FDI into single brand retailing. So far, single brand retailers have been operating through the franchisee route in the country. The decision to allow FDI into single brand retailing comes amidst concern over the possibility of job losses and a bleak future for the local kirana shops. The government is confident that, contrary to such fears, allowing FDI into retailing would result in more job creations and coexistence of both the big retailers and their small counterparts. However, this decision could well lay the foundation for opening up the sector completely in future.
The relaxation of FDI into retailing (for now only in single brand retailing) has elicited mixed reactions with a section of domestic retailers feeling that the proposal is not exciting enough, as even without this many brands are already present in India through the franchisee route. Andreas Gellner, Managing Director, Adidas India, commented in The Economic Times that the current cap would not bring in the "tidal wave" of companies, which are keen on catering to the Indian market. "In spite of allowing 51% in retail, companies need to lookout for a local partner, which is not an easy process," he added. "Although there would be no significant strategic investment by foreigners (post allowing FDI in retail), it will lead to employment generation as the whole sector gets a boost," told Vijay Jain, CEO of Orra Diamonds, to the business daily.
Retailing in India, which contributes around 12% of the country's GDP and employs more than four crore people, is showing signs of bigger and better growth. The country now has a huge middle-class consumer base numbering more than 300 million, comprising mostly of young people with rising incomes, huge appetite to consume and access to easy finance. This retail boom is expected to translate into 8 million new jobs in the next 5-8 years. A study by International Council for Research on International Economic Relations (ICRIER) reveals that although organized retailing accounts for only 2% of the industry, India has one of the world's highest retail densities with 15 million outlets. The recent AT Kearney annual global retail development index has also ranked India at the top of the most promising consumer markets in the world, and accorded "peak attractiveness" status to it. It adds that increasing urbanization and rising purchasing power parity (PPP) among the Indian middle and upper classes has resulted in increased demand for retail goods. The report also indicates that India has an underserved market that has grown at 10% on an average in the last five years.
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