India’s government announced on 14th September, that it will allow global supermarkets to invest into India’s lucrative retail sector subject to certain conditions being met. The Indian Government is keen to encourage investment into India following a recent slowing down in the economy and reduced foreign investment following controversial plans to introduce a retrospective tax change.

This will be viewed as a very positive announcement by all the global supermarkets which have been keen for a number of years to invest into India. International firms such as Wal-Mart and Tesco will now be able to buy up to a 51% stake in multi-brand retailers in India. In addition to this cap of 51%, global supermarkets will have to meet a number of other conditions including a condition that this will only be allowed in those States that agree to it (there are some States that have already indicated that they are in favour e.g. Delhi and Maharashtra. whilst others have indicated that they will not allow such investment e.g. Bihar and Madhya Pradesh), outlets can only be opened in cities with a population of more than one million, at least 30% of produce must be sourced from India’s small industries and at least 50% of total investment must be in “backend infrastructure” within 3 years.

Hopefully this time the Indian Government will be able to implement its plans. Only last year, it had to suspend a similar plan after fierce opposition from its allies and political rivals. Prime Minister Manmohan Singh said: “I believe that these steps will help strengthen our growth process and generate employment in these difficult times.”

Also the Indian Government has announced a loosening of one of the main conditions relating to 100% single brand retail  investment into India. It has now announced that sourcing of 30% of goods will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen where it is feasible. The previous mandatory requirement had prevented major single retailers like IKEA for investing in India simply because they could not meet the strict condition. The new condition should now see major single brand operators invest significantly into India.

Further information on retail trading in India is made available in these two bulletins from the Press information Bureau of the Government of India Cabinet:

Press release: Amendment of conditions in the policy on foreign direct investment in single brand product retail trading

Press release: Permitting FDI in multi-brand product retail trading