Green Signal for Single Brand Retail

By Rushab Dhandokia, Institute of Law, Nirma University

At last the cat is out of the bag. By moving heaven and earth for a prolong  time and camouflaging the decision by various conditions on the retail front, the Department of Industrial Policy and Promotion (DIPP)  has finally approved 100% Foreign Direct Investment (FDI) in Single Brand Retail Trading vide its Press Note No.1 (2012 Series) on 10th January 2012.
 
Before elaborating further it is important to mark a difference between Single Brand Retail and Multi Brand retail.

Single Brand Retail: Illustratively, when Addidas Company open its stores in Ahmedabad, Delhi, Mumbai etc. selling Addidas shoes, Addidas T-shirt, Addidas Sunglasses only, this Is Single Brand Retail.

Multi Brand Retail: When Reliance opens malls and sells shoes, T-shirts, Sunglasses etc. of numerous brands under one roof is called multi Brand retailing.

It is undeniable fact that every developing economy is today FDI starving to enhance its economic growth by leaps and bounds. Accordingly this move is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.

It has been decided that anyone who wishes to set up shops in India the following conditions are to be met-

(a) Products to be sold should be of a 'Single Brand' only.
(b) 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.
(c) 'Single Brand' product-retail trading would cover only products which are branded during manufacturing.
(d) The foreign investor should be the owner of the brand.
(e) In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian 'small industries/ village and cottage industries, artisans and craftsmen'.

'Small industries' would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million.

FDI in Single Brand Retailing was permitted in 2006 to the extent of 51%; this however proved to be a dampener on plans for companies like Ikea, Louis Vuitton, Cartier, Armani and Rolex to roll out investments to open fully-owned stores in India. The limited exposure given to the foreign brands to explore Indian Retail Avenue discouraged them to participate effectively. Since 2006 an FDI inflow of US $ 194.69 million (Rs. 901.64 crores) was received between April, 2006 and March, 2010. The legislation will now help global fashion brands especially from Italy and France to strengthen their interest in the growing Indian market.

The immediate effect of this move is that global patrons who have tied up with local brands will have the opportunity to buy out the domestic partners.

The new rule would hardly harm the interest of the Kirana shopkeepers because of the nature of the goods i.e. these are