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Friday, 30 Aug 2019
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Relaxation in FDI Norms to Support Growth of Retail Sector

Shubhranshu Pani SAMG

Single brand retailers will now be able to start online sales before they set up brick-and-mortar stores, but will need to open these within two years. The two year period, however, may not be enough for retailers to set up stores at prime locations


The ease in FDI norms brings the much-needed clarity in policy

India will attract more international brands for investments and trade

The move will help in the growth of omnichannel retailing by big brands


A positive consumer-centric move, it will bring the Indian market at par with other open market economies. This move by the government has brought about much-needed clarity and solution to the dilemma of international brands who have high quality, specialized inputs. The earlier FDI norms were not letting better products enter the market or letting retailers look at the country. The earlier restrictive policy environment didn't support local outsourcing. Moreover, brands were not able to continue with the same quality parameters as applicable in other international markets. As a result, interest and investments had tapered and were not forthcoming. However, now single-brand retailers will be able to start online sales before they set up brick-and-mortar stores.

The success of brands such as Zara, Starbucks and other international names that are already operational here has made India's retail sector shine at the world level. This new ease in FDI norms will give a big boost to global brands and make the India market attractive for them for further trade and investments. It would have an after-effect of also boosting exports which they can source from India to fit their product portfolio.

Primary segments which will benefit would be electronics, mobiles, apparels and luxury goods. If brands open stores on their own it would also create an opportunity for technology upgrade and workforce quality enhancement in the market. This will also aide big retailers who prefer selling goods online and offer next-generation buying experience to their consumers.

Permission to trade through e-commerce is a great decision as simultaneously brands would move their omnichannel machinery to India. This would increase the market size quickly and make them reach out across India. Needless to say this will result in higher business volume and growth.

Under the new norm, retailers will need to open physical stores within two years. The measure will also help retailers, who otherwise used to incur an initial cost on setting up the physical store. But a two-year period seems less as typical shopping centres have a 3 to 4 year construction period, and many prime locations may have already been blocked. However, it would not be a deterrent as the brands can commence with e-commerce immediately with limited physical stores and wait for the newer shopping centres to emerge.

 

 
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