India begins to open up retail sector

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International retailers have been knocking on India's door for some time, but only now is it beginning to show signs of creaking open

Foreign direct investment (FDI) in domestic retail is still a contentious issue in the country, where overseas investors are banned and small local operators protected. Despite some dissenting voices, a report from a Government steering committee on FDI has published a paper as part of the country's 10th Plan on economic strategy saying the opening up of the sector was an immediate requirement. The 10th Plan was released on September 6 and endorsed by the Prime Minister and the Cabinet last week, including recommendations for dismantling large elements of the public sector.

The 10th Plan document acknowledged that tourism can also receive a boost from a developed retail sector stating: "Retailing is an area of tremendous spin-offs. Even tourism will be promoted by modern mega shopping and India is a country with very underdeveloped and inefficient retailing."

Reform of the duty-free sector has also begun slowly with Alpha Retail opening in the 49% privatised Cochin International airport in April. Another international tender for additional duty-free shops at various secondary airports is currently being progressed by the Airports Authority of India. In the domestic market, the major impediment facing luxury brand retailers in India is the 85% duty imposed on the sector, one of the highest rates in the world. But this has not deterred luxury groups from making the first investments in the market. LVMH Watches and Jewellery launched Christian Dior watches in India last month in selected outlets following the success of TAG Heuer. According to LVMH Watch & Jewellery Asia Pacific managing director Ravi Thakran the company plans to open over 20 boutiques in Delhi, Mumbai, Bangalore, Kolkata and Hyderabad in the coming months.

Thakran commented: "With Indian fashion arriving on the international scene and with the Indians arriving young in life on the economic front, the market for luxury watches in India is buoyant. The decision to remove [international] discrepancy in pricing will no doubt lead to losses in the first few years considering the heavy duties we have to pay. But we decided to take a plunge in order to ensure that none of our products come through other channels," said Thakran.