The Government of India’s recent decision to allow Foreign Direct Investment (FDI) up to 51% in multi-brand retail trading has a clause that virtually puts a spanner on online operations. The clause states, retail companies who have multi-brand operations may open up physical shops with a domestic partner & have a controlling stake in it. However, these retail-chain owners cannot sell their merchandise via the online route!
This decision comes as a rude shock for many international multi-brand retail giants. Perhaps the biggest jolt may come to e-retailer Amazon, who after months of nervous anticipation had managed to get a foot-hold via the online route.
How does this rule affect the retailers? Since the rule clearly states foreign companies who own the majority stake of 51% cannot launch online operations, companies like Amazon will not be able to open physical outlets & companies like Walmart will be restricted to offline operations only. Walmart too, had been eyeing the Indian retail scenario & had made efforts to carve a niche for itself, but that endeavor failed.
Why is this being done? India has a very strong trader lobby. These middle-men had in fact opposed the allowing of foreign companies in India to safeguard their interests. However, as India is on the cusp of development & desperately needs foreign investment to boost its economy, the Government took a radical decision to allow 51% FDI in retail. But if foreign companies get to control India’s retail scenario & that too via both the routes, India’s economy itself would become vulnerable. Secondly, another of the lesser known clauses ensures that these foreign companies have to source about 30% of the material / merchandise from India itself, thereby protecting the Indian manufacturing companies.
Will online retail giants Amazon who have worked hard & meticulously to make an entry into India, give-up so easily? What do you think?
Image Courtesy | retailview