India allows 100% FDI in single-brand retail

India on Tuesday formally removed restrictions on foreign investment in its single-brand retail sector, paving the way for global store chains like Adidas, Nike, Louis Vuitton and Gucci to have full ownership of their Indian operations.

Retailers previously were subject to a 51 percent cap in foreign direct investment (FDI), a regulation that had deterred a number of firms such as Swedish furniture giant IKEA from opening stores in Asia´s third-largest economy.

In a statement, the government, that faced a backlash after announcing a move to throw open India's $450 billion retail sector to foreign companies late last year, said that to invest beyond the earlier limit, firms will need to source 30 percent of their goods from small and village industries.

The decision to increase the FDI limit in single-brand retail sector was announced by the Cabinet on Nov 24 along with a similar move in multi-brand retil but the government was forced to put on hold after a political outcry from the opposition and allies.

"This step will provide stimulus to domestic manufacturing value addition and help in technical up gradation of our local small industries," Commerce Minister Anand Sharma said.

While 51 percent FDI in single-brand retail has been allowed since Feb 2006, the sector has not seen a significant surge and according to some estimates foreign investments worth Rs 196 crore only have been received in the last three years.

India's industry leaders largely welcomed the move, saying it will lead to more choices for consumers, encourage domestic industry to become more competitive and improve inflows from foreign institutional investors into the country.

"We hope political consensus will soon be evolved to allow 100 per cent FDI in multi brand retailing as well," said D.S. Rawat, secretary general of trade lobby ASSOCHAM said.

"That will be a big step as it will create lakhs of new jobs, curb agricultural wastages, benefit farmers with better remuneration for their produce and bring down prices of many commodities."