Modi government allows 100 per cent FDI in retail, with caveats

To promote make in India scheme, the Narendra Modi government is considering allowing 100 per cent foreign direct investment (FDI) in multi-brand retail as long as the products are made in India.

The policy is unlikely to be termed “FDI in multi-brand retail” as the Bharatiya Janata Party (BJP) is opposed to the idea and had promised in its 2014 election manifesto to not allow this. In 2012, the then Congress-led United Progressive Alliance government allowed 51 per cent FDI in multi-brand retail in some cities, subject to the approval of state governments. When it came to power in 2014, the BJP-led National Democratic Alliance government put the policy on ice without a formal notification. On the other hand the proposal may also help Prime Minister Narendra Modi meet his target of doubling income of farmers by 2022.

The current proposal by the government, if implemented, is expected to be vastly different from the UPA policy as it will not allow imported items to be sold by multinational supermarket chains such as Wal-Mart Stores.

In parallel, the government is considering allowing foreign food retailers to sell 25 per cent non-food items of the total items sold to enable 100 per cent FDI in food retail chains. Akash Gupt, partner at PwC India, pointed out saying that the proposal to link foreign investment in retail to local manufacturing and sourcing makes sense as it will create manufacturing capacity in the country. He further added that multinational hypermarkets may be interested in opening stores in India under the model since they don’t rely a lot on imports and mostly depend on local supplies.

In a report released by lobby group Federation of Indian Chambers of Commerce and Industry and PwC it was stated that by 2020, India’s retail sector is expected to double to 1.1-1.2 trillion dollars from 630 billion dollars in 2015 at a compound annual growth rate of 12 per cent.

The report also added, backed by robust economic growth and rising household incomes, consumer spending in India is also expected to touch about Rs 230 trillion by 2020, increasing India’s share in global consumption to 5.8 per cent, more than twice its current levels.