India poised to relax laws on foreign direct investment

New guidelines could allow multi-brand Western firms to scale up operations

The Indian government could be poised to open the door to foreign direct investment (FDI) in the country, in a move that could have huge ramifications for the ambitions of companies, including Tesco and Wal-Mart, in the burgeoning Indian economy.

Speculation is mounting that a relaxation of FDI rules may be forthcoming after the Indian Ministry of Commerce issued revised guidance on what constitutes a foreign holding in an Indian company.

Under the new guidelines, as long as a company is more than 50 per cent-owned by Indians, the government would consider any investment into that company to be Indian equity, regardless of whether the sector is one in which FDI has been capped, such as multi-brand retail. Current FDI rules only allow single-brand retailers, such as Germany's Metro, to open stores, while multi-brand retailers, such as Tesco and Wal-Mart, are only allowed to deliver supply chain and back-office services.

David Roberts, partner and head of leisure and retail at Olswang, the law firm, said: "Effectively, provided the relevant company is an Indian company then FDI restrictions could fall away."

For example, if a Western retailer formed a joint venture with an Indian firm that company could potentially acquire an Indian-based store group and run all of its operations – including "front door" retailing services, such as store operations. It could also lead to the acquired company being rebranded using the Western retailer's branding.

Last year, Tesco signed an exclusive franchise agreement with Trent, Tata's retail arm, to provide extensive retail and technical services to support the development of its hypermarket business, Star Bazaar. But if the new guidance comes to fruition, it may seek to revise the terms of the deal, Mr Roberts said.

Tesco declined to comment. But it is understood that it and other UK companies have been seeking clarification over the new guidance issued by the government.

Kishore Biyani, the managing director of the retail giant Pantaloon Retail, said at the weekend: "This opens the way for front-door entry of foreign direct investment in organised retail."

However, industry sources remain sceptical that the Indian government is committed to liberalisation. It has been suggested that a simplification of FDI norms is largely aimed at rescuing some domestic companies in sectors, such as telecoms and civil aviation, that are facing a financial crunch. In particular, sources said that an easing of the entry restrictions for foreign retailers would be political dynamite and deeply unpopular among the hordes of Mom and Pop shops.

The uncertainty around the measures, which emerged last week, is compounded by the fact that the country is set to go to the polls. Elections are expected in April and May, with the ruling United Progressive Alliance government likely to face staunch opposition from left-leaning parties if there is a relaxation of the FDI rules. In yesterday's Budget, the Indian government said: "To provide an impetus to foreign investment in India, guidelines are being further simplified and made homogeneous and consistent across various sectors."

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor
The ZX Spectrum has been crowd-funded back into play - with some 21st-century tweaks

The ZX Spectrum is back

The ZX Spectrum was the original - and for some players, still the best. David Crookes meets the fans who've kept the games' flames lit
Grace of Monaco film panned: even the screenwriter pours scorn on biopic starring Nicole Kidman

Even the screenwriter pours scorn on Grace of Monaco biopic

The critics had a field day after last year's premiere, but the savaging goes on
Menstrual Hygiene Day: The strange ideas people used to believe about periods

Menstrual Hygiene Day: The strange ideas people once had about periods

If one was missed, vomiting blood was seen as a viable alternative
The best work perks: From free travel cards to making dreams come true (really)

The quirks of work perks

From free travel cards to making dreams come true (really)
Is bridge the latest twee pastime to get hip?

Is bridge becoming hip?

The number of young players has trebled in the past year. Gillian Orr discovers if this old game has new tricks
Long author-lists on research papers are threatening the academic work system

The rise of 'hyperauthorship'

Now that academic papers are written by thousands (yes, thousands) of contributors, it's getting hard to tell workers from shirkers
The rise of Lego Clubs: How toys are helping children struggling with social interaction to build better relationships

The rise of Lego Clubs

How toys are helping children struggling with social interaction to build better relationships
5 best running glasses

On your marks: 5 best running glasses

Whether you’re pounding pavements, parks or hill passes, keep your eyes protected in all weathers
Joe Root: 'Ben Stokes gives everything – he’s rubbing off on us all'

'Ben Stokes gives everything – he’s rubbing off on us all'

Joe Root says the England dressing room is a happy place again – and Stokes is the catalyst
Raif Badawi: Wife pleads for fresh EU help as Saudi blogger's health worsens

Please save my husband

As the health of blogger Raif Badawi worsens in prison, his wife urges EU governments to put pressure on the Saudi Arabian royal family to allow her husband to join his family in Canada