Local single-brand retailers like Fabindia, Hidesign, Nalli to access foreign funds

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NEW DELHI: The government has exempted Indian single brand retailers from the purview of a controversial provision that restrained them from raising funds from foreign private equity funds and overseas investors.

This clarification paves the way for single brand retailers such as Fabindia, Hidesign, Nalli, Gitanjali Gems, Lilliput, and Gini & Jony to access foreign funds as long as the Indian owners retain a controlling stake of more than 50%.

The government had earlier allowed foreign investment in single brand retail with the condition that the foreign investor should be the owner of the brand.

The proposal of Fabindia, the well-known ethnic wear company, to induct L-Capital as an investor was kept pending by the Foreign Investment Promotion Board for about five months due to lack of clarity on this issue.

Finally last week, the FIPB took the view that the brand ownership clause related to foreign brands and not to Indian companies such as Fabindia. It was felt that no FIPB nod was required for change in foreign equity or for selling additional goods as long as Fabindia brand continued to be owned by an Indian-owned and controlled company.

A spokesperson for Fabindia refused to comment, saying the company is yet to receive an official letter from the DIPP.

But other local single brand retailers have welcomed this development. “This makes life clearer and simpler. The critical difference is that Indian companies own the brands. Why should we be lumped in the same boat as the foreign companies,” said Dilip Kapur, president, Hidesign. LVMH, the owner of L-Capital, owns a 5% stake in Hidesign.

“This is welcome news. The brand ownership clause prevented Indian single brand retailers from attracting PE investment. Now we can have PE investors,” Mehul Choksi, managing director of Gitanjali Group, said. But Choksi chided the government for taking “too long to define any policy.”

Though the government has cleared the air for Indian companies, it has added to the confusion regarding foreign investment norms in single brand retail on another issue.

The Department of Industrial Policy and Promotion, the department responsible for formulating foreign investment policy for retail, has said books and CDs don’t fall under the list of permissible products that can be sold by single brand retail companies

DIPP, while commenting on the Fabindia proposal said it did not support addition of books and CDs to the permitted items as they were not branded and were generally sold as the product of the publisher or the author.

As the FIPB subsequently took the view that Fabindia did not require its approval, it is possible that this restriction may not apply to the ethnic goods maker. But it will apply to companies such as Disney if they wish to invest in India through the single-brand retail route.

Global booksellers such as US-based Barnes & Noble and Borders are already barred from investing in India as they sell products under multiple brands and titles and any overseas investment in multi-brand retailing is completely closed in the country.

While the government hiked overseas ownership in single brand retail to 100% in January from 51% earlier, the sector has been mired in controversy because of complicated norms entry norms.

Investment proposals of about half-a-dozen single-brand retailers are pending with the FIPB because they do not comply with the provision that the investing company must be the owner of the brand.

IKEA and other retail companies also want the government to relax the guideline that stipulates that 30% of the merchandise they sell in India should be procured locally from small vendors.

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