The Indian Government has finally taken baby steps towards opening up the retail sector to foreign investment. In a recent announcement, the Government stated its intention to permit foreign investment in ‘single brand’ retail up to 51% with the remaining 49% to be owned by Indians. Permission of the Foreign Investment Promotion Board, the agency responsible for approving foreign investments into the country, is required before any investment is made.

'Single brand' retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets. Retailers would be able to sell multiple products under the same brand and not be limited to one or two products.

A lot of foreign retailers will be pleased to hear the news. Companies which have a policy of owning its own outlets will just need to find an Indian partner to own 49% of the equity and can expect to expand rapidly. In most cases, it should not be a problem to find a way to keep control of the operational aspects of the business. Indian partners would be most happy to oblige if profits are generated.
For those brands which adopt the franchising route as a matter of policy, this new announcement will not make any difference. They would have preferred that the Government liberalize rules for maximizing their royalty and franchise fees. They must still rely on innovative structuring of franchise arrangements to maximize their returns. Consumer durable majors such as LG and Samsung, which have exclusive franchisee owned stores, are unlikely to shift from the preferred route right away.
For those companies which wish to take advantage of the new regulations, there are a number of issues which they must be aware of while considering an investment in this sector.

First, the foreign investor must make an application to the Government for approval.  

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