India is the third largest economy in the world – and stability coupled with consistent growth of such a large contributor to the global economy is not an easy task. The Indian government has been consistent in its support for market development through trade liberalization, financial liberalization, taxation reforms and opening up to foreign investments. India's twin growth engines of economic growth and demographic profile set it apart from other nations and present a compellingbusiness case for global retailers looking to enter the Indian market. In its endeavors to encourage foreign investments in India, the Department of Industrial Policy and Promotion ("DIPP") of the Ministry of Commerce and Industry vide Press Note No. 1 (2012 Series) dated January 10, 2012 ("PN 1"), has permitted 100% Foreign Direct Investment ("FDI") in single brand product retail trading under the Government route ( i.e. with the prior approval of the Secretariat for Industrial Assistance and the Foreign Investment Promotion Board).
Prior to PN1,up to 51% was allowed in the single brand retail sector. But with the recent 100% limit relaxation, entry in the Indian markets has become a very lucrative opportunity for global as well as domestic market players. The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. By relaxing the FDI laws relating to single brand retails, the Indian government has definitely created a positive step forward, paving the way for foreign retailers selling single branded products to move into India without having to join with an India partner.
Prior to the PN 1, FDI in single brand product retail trading was allowed up to 51% under the government route. Further, prior to PN1, FDI in single brand product retail trading under the FDI policy was subject to the following conditions:
- Products to be sold should be of a 'Single Brand' only.
- Products should be sold under the same brand internationally, i.e. products should be sold under the same brand in one or more countries other than India.
- 'Single Brand' product-retailing would cover only products which are branded during manufacturing.
- The foreign investor should be the owner of the brand.
PN 1, with the 100% FDIinfusionin single brand product retail trading under the Government route, has been made subject to further conditions in addition to the aforementioned already existing conditions:
- Overseas retailers who want to invest in single brand product retail trading in India beyond 51% will have to source 30% of their goods from "Indian" small industries, village industries and cottage industries, artisans and craftsmen.
Some of the objectives that the Indian economy seeks to gain with such relaxation are:
- Attracting investments in production and marketing;
- Improving the availability of such goods for the consumer;
- Encouraging increased sourcing of goods from India;
- Enhancing competitiveness of Indian enterprises through access to global designs,technologies and management practices.
Indian organized retail industry is one of the fastest growing sectors with huge growth potential. Total retail market in India is estimated to reach USD $573 billion by 2012-13. Organized retail industry accounts for only 5.5% of total retail industry and is expected to reach 10% by 2012.
Foreign companies' attraction to India is the billion-plus person population. Also, there are huge employment opportunities in the retail sector in India, not to mention cheaper procurement and labor. India's retail industry is its second largest sector, after agriculture, which provides employment. There is a huge industry with hardly any large players. In addition to these factors, improved living standards and continuing economic growth, friendly business environment, growing purchasing power and increasing number of conscious customers aspiring to own quality and branded products in India are also attracting to global retailers to enter the Indian market.
Right time to tap the Indian Market
India has emerged as one of the prime destinations for the investment of funds from an impressive number of foreign investors. Undoubtedly, with the further relaxations in the FDI norms, there is a lucrative opportunity for foreign players to enter one of the biggest territorial markets and reach out to a large customer base. It is also imperative that the players participate in market expansion by getting introduced in the Indian markets sooner than their competitors.
Growth rate trend of the Indian industry together with the changing consumer inclination such as increased use of credit cards, brand consciousness, and the growth of population are factors that encourage a foreign player to establish outlets in India and tap the huge Indian market.
At present, most major global brands and retailers who are not yet in India are assessing the Indian market with keen interest, recognizing its strengths as a retail destination. It is widely speculated that major brands like Pavers England, IKEA, Gap and Starbucks, etc. have either already set the machinery running in order to make a timely entry in India or are seriously considering making the move. Furthermore, international brands that had already partnered with an Indian partner now can go solo without diluting their stake in the Indian market.
With the relaxation of norms, opening up of the market and pro-investment attitude of the government, this is the ideal time for prospective foreign players to make an earnest start in a major retail market, as India has finally stepped beyond the brink of further liberalization.
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