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Relaxation in FDI Norms to Support Growth of Retail Sector

Single brand retailers will now be able to start online sales before they set up brick-and-mortar stores but will need to open these within two years. The two-year period, however, may not be enough for retailers to set up stores at prime locations

Shubhranshu Pani 

A positive consumer-centric move, it will bring the Indian market at par with other open market economies. This move by the government has brought about much-needed clarity and solution to the dilemma of international brands which have high quality and specialised inputs. The earlier FDI norms were not letting better products enter the market or making retailers look at the country. The restrictive policy environment did not support local outsourcing. Moreover, brands were not able to continue with the same quality parameters as applicable in other international markets. As a result, interest and investments had tapered and were not forthcoming. However, now, single-brand retailers will be able to start online sales before they set up brick-and-mortar stores.


Highlights: 

  • Easing of FDI norms brings much-needed clarity in policy
  • India will attract more international brands for investment and trade
  • The move will help in the growth of omnichannel retailing by big brands

The success in India of international brands such as Zara and Starbucks and others has made India’s retail sector shine at world level. This new ease in FDI norms will give a significant boost to global brands, and make the India market attractive for them for further trade and investments. It would have an after effect of also boosting exports which they can source from India to fit their product portfolio.

Primary segments which will benefit would be electronics, mobiles, apparel and luxury goods. If brands open stores on their own, it would also create an opportunity for technology upgrade and workforce quality enhancement. This will also aid big retailers who prefer selling goods online and offer next-generation buying experience to consumers.

Permission to trade through e-commerce is a great decision, as simultaneously brands would move their omnichannel machinery to India. This would increase the market size quickly. Needless to say, this will result in higher business volumes and growth.

Under the new norms, retailers will need to open physical stores within two years, and to that extent, their capital investment may be postponed. But a two-year period seems less as typical shopping centres have a 3 to 4 year construction period, and many prime locations may have already been blocked. However, it would not be a deterrent as the brands can commence with e-commerce immediately with a limited physical presence, and wait for newer shopping centres to emerge.


The author is MD at Retail Services & Stressed Asset Management Group (SAMG).

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