Retail roulette puts investors on edge

Using “multi-brand retail” and “foreign investment” in the same breath may no longer be taboo in light of the discussion paper recently released by the Department of Industrial Policy and Promotion on the subject. Retail trade has hitherto been a holy cow for Indian policymakers and the sector’s liberalization has been much resisted, given the socio-economic and political sensitivities surrounding it. The attempt to insulate retail trade from foreign investment is a protectionist move for the benefit of local mom-and-pop stores, which dominate the Indian retail sector.

Retail trade: the story so far

Although the liberalization of the Indian economy began nearly two decades ago, a hard embargo on foreign investment in retail trade existed till as recently as 2006, when offshore investment was first permitted in single-brand retail in India. Even this window was highly regulated, with foreign investment requiring prior governmental approvals and being capped at 51%, amongst other conditionalities.

While the move brought some cheer to the Indian fashionista who no longer had to go abroad to get her fix of Armani and Cartier, it did not have a large scale impact on the retail landscape in India.

Arun Madhu is a senior associate at Phoenix Legal in Mumbai where Akanksha Midha is an associate. They can be reached at arun.madhu@phoenixlegal.in and akanksha.midha@phoenixlegal.in.