With Foreign Direct Investment in multi-brand retail here, retail in India may never be the same again. India has made rapid economic progress over the past two decades and with the economic liberalization during the 1990s, the country’s vast markets were suddenly opened up to foreign companies, investors and business houses.

On the retail side, the government has been somewhat slow in opening up the sector. In 1997, Foreign Direct Investment (FDI) in cash-and-carry (wholesale) with 100 percent ownership was allowed under the Government approval route.
It was brought under the automatic route in 2006.

In 2006, 51 percent investment in a single-brand retail outlet was also permitted, but FDI in Multi-Brand retailing continued to be prohibited in India.

In an important policy move, the government gave permission for up to 51 percent FDI in multi-brand retail in September 2012.

The entry of international products, practices and technology is expected to enhance the efficiency of domestic retailers.

The government has made it mandatory for foreign multi-brand retailers to place at least 50 percent of their total investment in back-end infrastructure, thus giving a boost to facilities such as logistics and warehousing.
While much of the debate around mass scale job losses for the neighborhood mom-and-pop stores can be termed as hysteria, there is little doubt that in time the contours of retail would change. There is expected to be considerable change in the supply chain, which would include transportation, warehousing and cold storage.

The move also augurs well for the real estate industry and may soon see a trickledown effect. With multi-brand retailers exploring opportunities in India, demand for retail space is likely to rise significantly.
What remains to be seen is the impact on the franchise sector.

A franchise agreement has been the easiest track to come in the Indian market. In franchising and commission agents’ services, FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. Almost every foreign brand in the country has entered the country through this route.

With the FDI in multi-brand retail permitted, one can expect windfall businesses to come through the franchising route if the brands want to piggy back on Indian expertise.