Is the government going out of its way to appease the Left? What else is one to make of the idea (ET, June 22) that the government should impose curbs on foreign retailers operating through franchisees because that can be used to circumvent FDI restrictions?
Currently FDI in retail is banned, except in so-called single-brand retail where foreign investors can take a 51% stake. In the case of multi-brand retail, i.e., the likes of Wal-Mart and Tesco, it is possible for a local franchisee to use their brand names as long as the foreign retailer does not invest in equity.
Banning franchise arrangements will be retrogressive and will send needlessly negative signals. India is unique among major emerging markets in banning FDI in retail altogether. The frenzy over FDI in retail makes it unlikely that any major multi-brand retailer will come in anytime soon.
British retailer Tesco has already ruled out investing in India till equity investments are allowed. In case of single-brand retail, while 51% FDI is allowed, luxury lifestyle brands, the likes of Chanel or Hugo Boss or even brands like Starbucks may prefer the franchisee route as an entry point in order to test the market.
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