At least four foreign / international retailers have sought permission to set up wholly owned operations in India to sell their own brands since September 2012, when the government relaxed a sourcing rule which was seen as an impediment to investment by some companies.
The government in September 2012, relaxed an earlier condition that foreign single-brand retailers must source at least 30% of the value of their sales in India from small and medium-sized local companies. Companies such as Swedish furniture giant IKEA Group had seen the rule as an obstacle, because they said finding suitable local suppliers to start operations would be difficult.
French cookware maker Le Creuset S.A., Thailand-based luxury goods retailer Lotus Arts de Vivre, French sportswear company Decathlon S.A. as well as jewelry and watch maker Fossil Inc. of the U.S. have applied for investment permissions since September 2012, two officials at India’s trade ministry said Thursday.
They join IKEA and U.K.-based footwear company Pavers England, which were the first to apply for setting up wholly owned stores after India in late 2011 allowed full foreign ownership in single-brand retailers. Foreign investment in such operations was previously limited to 51%.
These applications indicate interest among overseas companies to tap the opportunity from India’s largely unorganized $500 billion retail sector. They also come at a time when the government is trying to attract foreign investment to help revive growth in Asia’s third-largest economy.
India in September 2012, had also allowed 51% foreign ownership in supermarkets. Retailers such as Wal-Mart Inc. of the U.S. have already shown interest in starting operations here, but the government has yet to receive any concrete proposals for foreign investment in supermarkets.
In the single-brand segment, IKEA in June-2012, last year proposed investing 1.50 billion euros ($2 billion) over the next 15-20 years to set up 25 wholly owned stores.
But, IKEA and other potential foreign investors in the sector weren’t happy with the sourcing rule. In September, the government relaxed that rule to allow them to also source from big Indian companies. ” The 30% sourcing clause was a non-starter”.
” With that condition now being relaxed, we are seeing a higher level of interest in India among international brands “. ” We expect many more foreign brands to foray into India in the coming one to two years “.
IKEA’s application for investment will be considered for approval by India’s Foreign Investment Promotion Board Monday (Jan 21, 2013).
Trade Minister Anand Sharma told reporters Thursday that the Department of Industrial Policy and Promotion was satisfied with IKEA’s investment application and that it had forwarded the proposal to the FIPB.
If the board approves IKEA’s proposal, it will go to the federal cabinet for final clearance. The board is required to send all investment proposals of more than 12 billion rupees, or about $220 million, to the cabinet.
Pavers England’s $20 million investment proposal has already been approved by the FIPB, making it the first foreign retailer to be allowed to set up wholly owned stores in India.
Fossil’s India managing director, Vasant Nangia, last year confirmed that the company had applied for setting up shop. The investment promotion board has yet to approve its application.
Among the other applicants, Decathlon already runs wholesale operations in the country–India allows full foreign ownership in wholesale stores. The company couldn’t be reached for comment Thursday.
Executives at Le Creuset, which operates a wholesale business and a franchisee store in Bangalore, weren’t available for comment.
A Lotus spokeswoman confirmed her company had applied for opening wholly owned stores. The application is currently ” under process “.