IKEA,
Tommy Hilfiger, Swarovski and Nike could soon get a smooth run in India with
the government considering significant changes in the foreign investment policy
for single-brand retailing to promote ease of doing business.
Addressing long-pending concerns of foreign companies, the government will likely allow them flexibility to simultaneously operate various retail formats — franchise, wholesale and company-owned — besides clarifying on the domestic sourcing clause.
The single-brand retail FDI policy, drafted by the previous government, is seen as a roadblock for top international companies looking to invest in India. Many applications are stuck due to the complexity of the policy.
While the January 2012 policy allows retailers to run 100% subsidiaries in India, it does not allow them to operate a mix of fully owned stores and franchisees or engage in wholesale trading. The mandatory 30% domestic sourcing norm kicks in when the FDI level goes above 51%
Addressing long-pending concerns of foreign companies, the government will likely allow them flexibility to simultaneously operate various retail formats — franchise, wholesale and company-owned — besides clarifying on the domestic sourcing clause.
The single-brand retail FDI policy, drafted by the previous government, is seen as a roadblock for top international companies looking to invest in India. Many applications are stuck due to the complexity of the policy.
While the January 2012 policy allows retailers to run 100% subsidiaries in India, it does not allow them to operate a mix of fully owned stores and franchisees or engage in wholesale trading. The mandatory 30% domestic sourcing norm kicks in when the FDI level goes above 51%
"The
concerns raised by foreign players are very valid. We will look into the matter
soon. It will require tweaking of present FDI policy in single-brand retail.
There are many interpretational and policy issues. We will make it absolutely
simple and lucid to promote ease of doing business," said a senior
government official.
The lack of clarity on policy has led to a piling up of unapproved applications. Austrian-based Swarovski, which sells accessories, jewellery and home decor items through more than 2,350 retail outlets worldwide, has been unable to open wholly owned stores with its application of wanting to house both formats — cash-and-carry and single-brand retail — together not going through.
The lack of clarity on policy has led to a piling up of unapproved applications. Austrian-based Swarovski, which sells accessories, jewellery and home decor items through more than 2,350 retail outlets worldwide, has been unable to open wholly owned stores with its application of wanting to house both formats — cash-and-carry and single-brand retail — together not going through.
It
was asked to apply separately for both formats or the 30% sourcing rule would
apply for the cash-and-carry operations as well. In other cases, companies have
proposed to enlist franchisees in India in addition to opening their own
stores. Franchisee stores are operated by third-party individuals and entities
that help brands to expand their presence in a country.
"Why should the government interfere in a company's business decisions? They should be allowed to do whatever format they want to use for retailing. If an Indian brand can sell watches through thousand different franchise outlets along with its fully owned stores, then why not a foreign brand?" the official argued.
"We will make FDI policy very simple with no confusion at all," he added. US apparel company Tommy Hilfiger hasn't been able to open a wholly owned store yet for the same reason. Sports apparel major Nike's application got rejected by the government. Experts argue that the company cannot close down 500-600 franchise stores in the country to open fully owned outlets.
Last week, IKEA asked the government to tweak the 30% domestic sourcing clause so that it is counted from the day the operations begin instead of from when the first tranche of investment is made, as an average of total value of goods purchased in five years.
"The issue raised by IKEA is quite understandable. Buying land itself is so difficult. There is a significant time gap between announcing your foray into the country and actually starting operations. This will be corrected in the policy," said the official.
The previous government had tweaked the mandatory 30% sourcing from small and medium enterprises norm for FDI in single-brand retail to accommodate Swedish furniture maker IKEA, making it 'preferable' rather than 'mandatory'. ,
The government could also consider a plan to allow single-brand retailers to bring in sub-brands or sell under different trademarks. IKEA has announced an investment of Rs 12,500 crore in the country and proposes to set up 25 stores over the next 10 years.
Over the past two years, over Rs 300 crore of investments have come into the single-brand retail sector.
"The single-brand retail policy is very confusing. Why should the government even distinguish between franchise and single brand, as they are not a threat to your kirana stores? How can ownership make a difference? This policy is practically impossible for most foreign brands. Government must reframe the rules to get foreign investment," said Arvind Singhal, chairman of Technopak Advisers.
"A clarification on the single-brand policy is required, especially the flexibility to go for franchise along with fully owned stores. It is a normal practice for any retail brand to have its own stores and also give rights to a third party. That is how you grow. The two have always coexisted and should be left to the company to take his decision," said Akash Gupt of PricewaterhouseCoopers.
"Why should the government interfere in a company's business decisions? They should be allowed to do whatever format they want to use for retailing. If an Indian brand can sell watches through thousand different franchise outlets along with its fully owned stores, then why not a foreign brand?" the official argued.
"We will make FDI policy very simple with no confusion at all," he added. US apparel company Tommy Hilfiger hasn't been able to open a wholly owned store yet for the same reason. Sports apparel major Nike's application got rejected by the government. Experts argue that the company cannot close down 500-600 franchise stores in the country to open fully owned outlets.
Last week, IKEA asked the government to tweak the 30% domestic sourcing clause so that it is counted from the day the operations begin instead of from when the first tranche of investment is made, as an average of total value of goods purchased in five years.
"The issue raised by IKEA is quite understandable. Buying land itself is so difficult. There is a significant time gap between announcing your foray into the country and actually starting operations. This will be corrected in the policy," said the official.
The previous government had tweaked the mandatory 30% sourcing from small and medium enterprises norm for FDI in single-brand retail to accommodate Swedish furniture maker IKEA, making it 'preferable' rather than 'mandatory'. ,
The government could also consider a plan to allow single-brand retailers to bring in sub-brands or sell under different trademarks. IKEA has announced an investment of Rs 12,500 crore in the country and proposes to set up 25 stores over the next 10 years.
Over the past two years, over Rs 300 crore of investments have come into the single-brand retail sector.
"The single-brand retail policy is very confusing. Why should the government even distinguish between franchise and single brand, as they are not a threat to your kirana stores? How can ownership make a difference? This policy is practically impossible for most foreign brands. Government must reframe the rules to get foreign investment," said Arvind Singhal, chairman of Technopak Advisers.
"A clarification on the single-brand policy is required, especially the flexibility to go for franchise along with fully owned stores. It is a normal practice for any retail brand to have its own stores and also give rights to a third party. That is how you grow. The two have always coexisted and should be left to the company to take his decision," said Akash Gupt of PricewaterhouseCoopers.
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