India eases rules for overseas firms
Single-brand retailers like Reebok, Nike can now have 51% ownership of their operations in India, newspaper says.
NEW YORK (CNNMoney.com) - In a significant step toward opening its retail market to outside competition, India will allow "single-brand" retailers such as Reebok and Nike to own 51 percent of their business operations in India, according to a report published Wednesday. The Wall Street Journal reported that India's cabinet approved relaxing the stringent foreign direct investment (FDI) regulations only for those overseas retailers that sell their own merchandise. Therefore, the move would preclude big-box merchants like Wal-Mart (Research) because the discounter sells a large number of brands in its stores. Wal-Mart executives have made no secret of the fact that they would like to set up shop in India as soon as possible. India's FDI regulations, which bar international retailers from directly entering the Indian market, have thus far stymied its plans. According to consulting firm McKinsey & Co., India's $250 billion retail market is the world's eighth largest and is expected to expand more than 7 percent annually over the next five years, the Journal said. The newspaper quoted India Commerce and Industry Minister Kamal Nath as saying the new policy is "aimed at attracting investment, technology and best global practices." But he did not address the entry of Wal-Mart and other bigger companies. However, a senior official with India's Department of Consumer Affairs who did not want to be named told CNNMoney.com on Wednesday that the government is moving toward "gradually liberalizing" its entire FDI policy. "I can't predict a timeframe for when that will happen because it is such a politically sensitive issue," he said. Regarding Wal-Mart, the official said the general view is that big retailers like Wal-Mart will benefit both Indian consumers and Indian producers, "particularly the farming sector because they will get better prices for their produce." "India needs a lot of investment in developing its supply chain infrastructure. Big players like Wal-Mart can help in this aspect as well," he added. "It's not just Wal-Mart but a lot of other big retailers are also very interested in India. Only three percent of our retail sector is organized. So it's a very rapidly expanding area." Nath added that single-brand retailers like Reebok will still need government approval before setting up according to the new guidelines, the report said. Opponents of liberalization, which include the Communist Party of India, argue that it will put some of the 12 million mom-and-pop stores that currently dominate the retail sector out of business, the newspaper said. But Nath rejected these concerns, saying the relaxed rules would cater to the growing demand for foreign products in India, the report said. Wal-Mart spokesman Bill Wertz said the new policy is a "very encouraging development." "We hope it leads to more liberalization of the law," he said in an interview with CNNMoney.com. "We have already applied for an office in India. We want to get our foot on the ground there and explore business possibilities," Wertz said. |
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