EMIS Emerging Market Information Service India Retail Sector | Page 17

Government Policy

Economic
Liberalization
of 1991

Government
Bodies

Major Players
Operate
Despite
Restrictions

Until 1991, all Indian governments followed protectionist policies that were influenced
by socialist economies. A balance of payments crisis in 1991 forced India to liberalize
its economy. The country joined the WTO in 1995, and, as part of the liberalization
process, has been slowly opening its retail sector to FDI through a series of steps.
The first was the permission of 100% FDI in cash-and carry (wholesale) in 1997. The
regulatory regime was eased up in 2006.

Foreign Investment in India is regulated by the Foreign Exchange Management Act
(FEMA) and the Foreign Exchange Management Regulations issued by the
Reserve Bank of India (RBI). The Ministry of Commerce and Industry is the key
government body in charge of implementing the FDI policy. Official communications
regarding the FDI policy are issued by the Secretariat of Industrial Assistance at
the Department of Industrial Policy and Promotion (DIPP).

Global retailers have been operating for years in India, under legal forms including
franchise agreements (Pizza Hut, Lacoste), cash-and-carry wholesale trading (Metro),
strategic licensing agreements (Mango, Starbucks) and manufacturing wholly-owned
subsidiaries (Nike, Reebok). The latter are treated as Indian companies and are
allowed to retail. Standalone boutiques (Christian Louboutin, Roberto Cavalli) have
opened since 100% FDI in single-brand retail has been allowed. The government
approved a total 18 FDI proposals in single-brand retail worth USD 173 mn between
Apr 2010 and May 2013, The Hindu reported on Aug 20, 2013.

Source: Corporate Catalyst India; Legal India; AT Kearney; The Hindu; The Hindu Business Line; PWC India;
Any redistribution of this information is strictly prohibited.
Copyright © 2013 Internet Securities, Inc. (trading as ISI Emerging Markets), all rights reserved.

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What Keeps Investors Away
 Only 11 States of India’s 28,
have approved FDI in multibrand retail, which means a
significant part of the country
is out of bounds for global
companies, keen on a panIndia footprint.
 There is no central agency for
a single-window clearance for
the approvals and licenses
required to start a retail
business in India. Chasing
multiple central and state
government agencies may
result in project delays and
cost overruns.
 The discretionary power of
states to approve retail
projects results in uncertainty,
as states may impose
additional conditions.