Foreign money to give retail investments a boost in new year

Dec 28 2012, 12:45 IST
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SummaryIf 2012 turned out to be a watershed year for Indian retail, the coming year is expected to transform it, in ways more than one.

If 2012 turned out to be a watershed year for Indian retail, the coming year is expected to transform it, in ways more than one. The decision of the government to allow FDI in multi-brand retail is expected to bring in $10 billion foreign investments, but concrete partnerships might be forged only from the latter half of 2013. The policy, which will allow global retailers such as Wal-Mart Stores to set up shops in India, is expected to bring in foreign investment and expertise to the ailing retail sector. But this comes with riders, like, 30% of the sourcing must be done from small industries and individual states having the option to adopt FDI.

For a major part of 2012, the country was embroiled in clashes regarding FDI in retail. While the ruling UPA was intent on passing it, the Opposition BJP, alongwith the Confederation of All India Traders was opposed, arguing that it will hurt farmers and kiranas across the country. But the UPA 2 managed to pass the bill in Parliament.

Along with multi-brand FDI, the government also raised the FDI limit in single-brand retail from 51% to 100%. It gave clearance to Swedish furniture company Ikea, British footwear retailer Pavers England, US-based clothing company Brooke Brothers, among others, to set up shops here. In multi-brand retail, things are expected to be slower than FDI in single-brand retail, which has more takers. With lower investment to set up single-brand stores, companies are more eager to enter the burgeoning Indian market.

The biggest benefit from FDI will be the capabilities brought in by foreign companies, not the capital infusion. This reform will help the Indian retailers run an organised, systematic and professional retail shop. Currently, global players in multi-brand retail are trying to understand the Indian market and exploring it, said Amitabh Mall, partner and director at BCG. It will be a while before multi-brand companies enter the market. Companies need to understand that such stores need to be planned on a larger scale, and require more capital than single-brand stores, said Mall.

Retail sector in India is a nascent one, with about 5% consisting of organised retailers. And they, too, have not tasted much success, financially. They are reeling under high raw material and realty costs, adding to a tapering demand that they have been seeing over the past year and a half. Most retail chains in

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