The decision to grant a 100% ownership of direct investments by foreign single-brand companies, a proposal that had been already advanced on November 24 last year, was notified by the Indian government on 10 January. On the other hand, silence is kept on the reform announced in December 2011 (subsequently immediately suspended) concerning the liberalization of foreign capital up to 51% in the multi-brand retail sector.
Both reforms had been the subject of discussion for years, without however obtaining any success; in this sense, the government's announcement in November last year seemed to have marked a turning point.
However, this declaration immediately gave rise to a series of dissents and protests, not only from the opposition, but also from allies of the majority coalition, leaders of Congress, as well as small Indian traders.
In particular, the provision concerning the possibility of opening up its internal market to giants of the caliber of Wal-Mart, Tesco and Carrefour, international multi-brand supermarkets, had been suddenly suspended due to the criticisms raised by the opposition. They agreed that such a measure, if it were adopted, would have seriously damaged both small traders and Indian farmers. The Indian government, led by Prime Minister Manmohan Singh, argued, on the contrary, that these reforms would bring advantages to the Indian economy, both in terms of reducing inflation and in terms of achieving greater efficiency, including through the creation of new infrastructure.
The liberalization of FDI for single-brand brands, allowing foreign investors to obtain an increase in ownership, from 51% to 100%, of their direct investments, it will favor companies such as Ikea, Adidas and Starbucks, but above all large international fashion brands, especially in light of the extension of the country's middle class.
Since this reform will lead to the dissolution of numerous pre-existing joint ventures between international companies and local partners, should the former wish to extend the ownership of their investments to 100%, the Indian government has established a series of rules and requirements to ensure control of this process.
In fact, only companies whose products sold refer only and exclusively to a single brand, which must however be recognized as international brand used for sales of the same company abroad. Single-brand products, admitted to the retail trade, are considered such only if the brand is affixed to them during the production phase. Finally, the foreign investor must be the owner of the brand in question.
Le procedures for obtaining the concession to extend ownership of investments, on the part of the foreign investor, over 51%, expect the single-brand company to submit an authorization request to the Industrial Assistance Office of the Department for the Promotion of Industrial Policies.
The application form in question must report the specific indication of the single-brand product or categories of products that the company intends to commercialize; any modification of this list of products, or product categories, will be subject to a new request for authorization which the Indian government will evaluate.
Finally, it is envisaged that international companies, which obtain approval from the Indian government and proceed with the increase of their stake beyond 51%, will have the obligation to source at least 30% of the value of its products from small industries, villages, artisans and Indian producers. The company must guarantee compliance with this obligation by means of a self-certification issued by itself, which must be submitted to the control of the board of statutory auditors on the basis of the certified financial statements, which the company is required to keep.
This supply obligation, as commented by the Minister of Trade and Industry Anand Sharma, will benefit the Indian economy by developing both the domestic manufacturing sector and technical innovation for local industries.
