Sharleen D`Souza & Raghavendra Kamath, Business Standard

Mumbai, December 13, 2011

After the UPA regime’s move to suspend its decision on foreign direct investment (FDI) in multi-brand retail, the industry is turning nervous about the prospects of single-brand retail as well. More so, since the government has yet to notify a Cabinet decision raising the foreign investment level to 100 per cent, from the current 51 per cent, for single-brand retail.

It was on November 24 that a Cabinet meeting gave its nod to both moves. After that, the Centre, on December 8, formally put on hold its decision to allow up to 51 per cent FDI in multi-brand retail, succumbing to mounting pressure from its allies and Opposition parties. True, an announcement followed that there was no suspension on the decision on single-brand retail. Yet, with the government coming under attack from the Opposition parties on several issues, the industry is now fearing a delay in the notification of the pertinent decision. UK-based fashion retailer French Connection says it has not yet sensed a clear direction over the approval of the FDI in single-brand retail. “There is a huge debate and uproar on FDI in multi brand, but no one seems to talk about single-brand,” notes Nidhi Dua, the firm’s country manager.

The national body of retailers has taken a wait-and-watch policy. Says Kumar Rajagopalan, chief executive officer of Retailers Association of India: “Until the notification is out, our fingers are crossed.”

Third Eyesight, which works with national and international retailers, says many of these chains are “frozen” with regard to their plans. “This is because of uncertainty on the policy front,” notes Devangshu Dutta, chief executive of the retail consultancy. “Only if there is clarity can you take an appropriate route. Here, you are stuck in a limbo; it’s unproductive for everyone,” he adds. “There must be political clarity on this.”

Swarovski India also notes there is no clarity from the government at the moment. “It is a little too premature to pre-empt,” notes Sukanya Dutta Roy, its director (consumer goods business). “We all hope that FDI in single-brand retail passes through.”

Prominent among the firms keen on India entry are Sweden-based home products company Ikea, US-based GAP, UK’s Arcadia group and Italy’s Prada. Those already having a presence in this country include the UK’s Marks & Spencer and Spain’s Zara.

Technopak Advisors says the government, in a larger sense, is not taking any decision on any front. “Why would any investor want to invest in a country where economic, political and policy matters are going from bad to worse?” asks Arvind Singhal, chairman of management consultancy.

However, the government seems confident about pushing the changes in single-brand FDI norms. “The decision remains; it has been approved by the Cabinet,” says a senior official. “There is no change on that front. We are in the process of notifying the rules soon. I don’t see this going anywhere.”

As for the policy riders, the condition of 30 per cent sourcing from the small-scale sector will kick in the moment foreign equity exceeds 51 per cent in single-brand retail. But a senior executive from management consultancy says the government can make the conditions even more stringent to pacify the critics of retail FDI.

With inputs from Nayanima Basu

(Read: "Debate on FDI in Retail -- More Heat than Light")