India abandoned a rule against foreign single-brand retailers operating stores without a local partner, paving the way for global companies including Starbucks Corp. (SBUX) and Ikea.
The government ratified a Nov. 24 cabinet decision to raise the ownership limit to 100 percent from 51 percent for single- brand, Trade Minister Anand Sharma said in a statement yesterday. The new rules take effect immediately and require the companies to use smaller Indian companies for at least 30 percent of procurement, he said.
Wal-Mart Stores Inc. (WMT), Carrefour SA (CA) and other foreign chains are still excluded from India’s $400 billion retail market after an attempt last year to change the law failed. Prime Minister Manmohan Singh’s administration has struggled to advance its initiatives amid opposition from its own allies and a corruption scandal that paralyzed parliament.
“This is a welcome move with a clear potential to lift the general mood in the economy,” Rajan Bharti Mittal, managing director at Bharti Enterprises, Wal-Mart’s Indian partner for wholesale hypermarkets, said in an e-mailed statement. “We hope the initiative is a precursor to further liberalization in the sector in the days to come.”
Pantaloon Retail India Ltd. (PF), India’s largest retailer, gained in Mumbai trading after the announcement. The stock rose as much as 10 percent, the most since Nov. 25, while Shoppers Stop Ltd. (SHOP) surged 20 percent. Trent Ltd. (TRENT), which has a franchise agreement with Tesco Plc (TSCO), rose as much as 6.9 percent. India’s benchmark Sensitive Index rose 0.4 percent.
Waiting for Multi-Brand
“People think that this would lead to a positive stance on multi-brand retail soon,” Sameer Narang, an Mumbai-based analyst with HDFC Securities Ltd. said in a telephone interview. “My opinion is that it’s not coming any time soon, given the way things went the last time the government tried to introduce it, I doubt a lot of traction will be seen on it.”
Starbucks would compete in India with operators including Lavazza SpA (LAVA)’s Barista Coffee Co. and closely held Cafe Coffee Day. The Seattle-based coffee chain said in November it intended to open its first store in India this year.
“Ikea welcomes the decision from the Indian government to allow 100 percent FDI in single-brand retail,” Nivedeeta Moirangthem, the furniture and housewares retailer’s India spokeswoman said in an e-mailed statement. India is a very interesting potential retail market for the Ikea Group.’’
Calls and e-mails to the Starbucks public-relations team in Seattle weren’t immediately answered. Starbucks signed an agreement with India’s Tata Coffee Ltd. (TCO) in January 2011 to source beans and consider opening stores.
Singh’s allies and other parties opposed a decision allowing retailers selling more than one brand, unveiled in late November, saying it would hurt local mom-and-pop type stores. The government suspended the policy Dec. 7.
“India remains committed to a system of regulation that is supportive of enterprise and we will do everything to encourage foreign investment,” Singh, 79, said in a Dec. 14 interview,
He said he would renew the multi-brand retail initiative after regional elections this year.
Singh, whose championing of free-market policies two decades ago helped India become the second-fastest growing major economy, faces allegations that the government lost $31 billion by unfairly awarding mobile-phone service permits in 2008 to ineligible companies and over contracts for hosting the 2010 Commonwealth Games.
The benchmark BSE Sensitive Index (SENSEX) dropped 25 percent last year, while the rupee slumped 16 percent versus the dollar.
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