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Various policy conditions for Foreign Direct Investment (FDI) in multi-brand retail make mass grocery and apparel the two most favourable segments to invest in, according to research and tax consulting firm Deloitte.
The firm in its report titled ‘Indian retail market — Opening more doors’, said that each of the conditions will have a different impact on the various sub-segments of the retail industry in India.
Policy condition
“A policy condition might have a low impact in one segment but could be a major stumbling block for another segment. Mass grocery and apparel are two of the fastest growing organised retail segments in India today. In both these segments, there are large domestic retailers who could be potential joint venture partners for foreign retailers,’’ said Gaurav Gupta, Senior Director, Deloitte Touche Tohmatsu India Pvt Ltd.
He said: “Foreign retailers could enter India by forming a new joint venture company, which shall have multi-brand retail stores in India. Alternatively, the foreign investor may also consider acquiring 51 per cent stake in the existing business set-up of the potential Indian joint venture partner.’’
Another advantage in the segment is that existing mass grocery retailers.
The report said multi-brand organised retail in speciality stores such as consumer electronics, footwear, furniture and furnishing is expected to expand and mature in the next few years. However, the policy condition on sourcing will continue to be a major bottleneck for FDI in many of these segments.
Back-end infrastructure
The report states that the primary concern for the mass grocery segment would be the condition to invest a minimum of Rs 250-220 crore in the first three years towards back-end infrastructure. For example, food processing unit, cold chains, etc.
While, other segments such as apparel, beauty & wellness and consumer electronics have limited requirements in the back-end.
Further, as per the policy, land cost and rentals that might be incurred for warehousing are not included in the definition of back-end infrastructure. Hence, meeting this policy constraint would be a challenge for any player in the retail segment other than mass grocery.
The policy however, does not specify whether investment in back-end infrastructure needs to be a fresh investment or if foreign companies can buy stakes in the already established back-end infrastructure.
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