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H&M retail entry a boost for India FDI
February 19, 2013, 10:47 pm

Cameron, right, urged Delhi to continue to open India's markets to foreign investment [Getty Images]

Cameron, right, urged Singh to open India’s markets to foreign investment [Getty Images]

As French and British trade delegations led by President Francois Hollande and David Cameron, the UK prime minister, leave India following a flurry of diplomatic exchanges over the weekend, New Delhi is pushing forward to lure high-end retailers to set up shop on the subcontinent.

Even before Cameron called on India’s economy to “open up” and allow more foreign direct investment, the New Delhi government had been trying to move away from  outdated rules and regulations, which have kept away investors, and push for more liberalised laws.

Just over a year ago, India began allowing foreign retailers to fully own outlets on the condition that 30 per cent of their sourced sales come from small to medium-sized domestic producers.

In September, it expanded the caveat to allow sourcing from large local suppliers.

Since then, several brand name retailers, such as Fossil, Ikea, Le Creuset SA, Decathlon SA and Promod SA, have been accepted by the Foreign Investment Promotion Board to establish operations in the country.

On Tuesday, Swedish budget fashion brand H&M entered the fray applying for a license to establish a full foreign ownership retail shop in India.

H&M has seen its sales take a beating in recession-hit Europe and is hoping that its wares will attract India’s burgeoning middle class in what promises to be a huge market.

“We will start with a few stores … and we will see if everything (goes) as we hope, then we will expand heavily from there,” said H&M Chief Executive Karl-Johan Persson after presenting his company’s plans to Trade Minister Anand Sharma in New Delhi on Tuesday.

As the third-largest economy in Asia, local and global economic experts have been urging the authorities to reduce FDI barriers and initiate reforms in order to overcome slowing economic recovery.

While acknowledging that India has been trying to reduce FDI restrictions, a report from the Organisation for Economic Cooperation and Development (OECD), says: “Reforms to further promote the development of a dynamic and efficient financial sector are needed to support investment and growth.”

Despite grievances that allowing foreign retailers easy access to the Indian consumer could hurt local industry, analysts say that such initiatives could bolster Delhi’s efforts to speed up economic recovery.

Writing in the Times of India, Aparna Ramalingam says that Delhi’s decision to grant permission for foreign investment in a phased manner will “help in addressing the technology and experience gap that the industry is facing currently”.

She also believes that foreign retail shops in India will have a positive impact on domestic markets.

Forecasts indicate that India’s economy is expected to grow up to 5.5 per cent in 2013.

Source: Agencies