India moves closer to easing FDI restrictions

India moves closer to easing FDI restrictions

India's proposed reform of foreign direct investment regulations, which would open the country's multi-brand retail sector up to international players, will move to its Upper House after being voted through its lower legislative chamber.

Initially the Indian government had planned to push the legislation through without putting it before Parliament. However, government ministers caved to strong opposition and India's Parliament is debating the introduction of the FDI bill. 

The proposed bill has already been passed in the Lower House, Lok Sabha, and was put before the Upper House, the Rajya Sabha, this week. According to A.T. Kearney parner Kaushik Madhavan, these debates will be key because "if it passes, the bill can become law". 

The proposals would ease FDI regulations and allow foreign companies to own up to 51% of multi-brand retail businesses. 

However, Madhavan tells just-food, even if the bill is enacted its impact on the competitive landscape of the Indian retail sector will not be immediate as it carries a number of clauses, the implications of which "need to be understood". 

Conditions include the power for individual states to block the opening of multi-brand outlets and stores can only be opened in cities of 1m inhabitants or more. Investors must spend at least US$100m, half of which must be put into back-end infrastructure. Retailers must also procure 30% of their products from Indian "small industries". 

"Even after passing of the legislation, there is unlikely to be an immediate impact. There are clauses in the form on minimum investment in back end infrastructure, local sourcing norms and state wise approvals etc - the implications of which would need to be understood by players before substantial investment commitments are made. This will take some time," Madhavan said. 

Nevertheless, in the "long run" Madhavan said the bill "will definitely lead to more investments in the sector and change in the competitive profile".