India opens retail sector to foreign brands

India's government has allowed foreign brands such as Adidas or home furnishings giant Ikea to open 100-percent owned shops, but will continue to block the entry of supermarkets.

The retail reform allowing wholly foreign-owned "single brand stores" into India was announced late Tuesday by the left-leaning government, which had initially announced sweeping plans to throw open the sector.

In December, it said it planned to allow in foreign supermarket chains such as Wal-Mart, but it backtracked two weeks later amid parliamentary opposition and protests from small shopkeepers.

Major Western brands such as Adidas already own shops in the booming retail centres and shopping malls of India's major cities, but they are currently obliged to operate with a local partner.

"Foreign direct investment (FDI) up to 100 per cent, under the government approval route, would be permitted in single brand product retail trading," the Department of Industrial Policy and Promotion (DIPP) said late Tuesday.

The condition is that the foreign companies owning more than 51 percent of their shops in India source a minimum of 30 percent of their products from small-scale local "cottage industry" suppliers.

"The move will not only mean more FDI but lead to employment and also lead to more choices for consumers," the secretary general of business lobby group FICCI, Rajiv Kumar, said in a statement.

"The sourcing clause will lead to a direct benefit for the SME (small and medium-sized enterprises) sector," he added.

The change to the foreign direct investment rule does not require parliamentary approval. The government U-turn on allowing in supermarkets was forced after an ally in the ruling coalition threatened to quit over the move.

AFP