New policy on foreign direct investment in India favours mass market retailers but not luxury

The Indian government has made it easier for foreign retailers like IKEA, Wall Mart and Tesco that can source locally from India to set up wholly-owned stores in the country, but many retailers, especially luxury brands, say the policy will not benefit them. Foreign retailers owning more than 51% shareholding in stores that sell products under a single brand will have to buy 30% of the value of goods locally, but not necessarily from micro, small and medium-scale enterprises, as laid down in an earlier policy announced in December 2011.

The government also allowed global luxury brands and retailers, which operate worldwide through separate investment arms while owning the brand through family trusts, to invest in the country through either of these entities, unlike earlier. Most luxury brands, however, will have to continue to work with an Indian partner (with a maximum foreign ownership of 51%) for now, as the 30% local sourcing norm for companies in which foreign retail firms hold a majority stake will stay.


Canali, Mumbai store

“They have only solved a part of the problem,” said Aparna Mittal, partner at law firm Luthra & Luthra. “For those brands that are capable of sourcing from India, they have opened up a little bit of a window by liberalising who they can source from. But it doesn’t solve the problem for several other high-end luxury brands.”

Ravi Thakran, group president, south, southeast Asia and Middle East at French luxury house LVMH, said: “We would hope that they would further ease the policy in the future so that luxury brands can also come in.”

adapted from Economic Times (India)