India opens for business, but watch out

Back in late November, the Indian government announced plans to open up its $450bn retail sector to foreign companies before, a few days later, backtracking and putting them on hold after strong opposition from politicians, concerned about the impact on local traders.

The plan was to allow foreign companies the ability to invest up to 51% in multi-brand retailers, and increase to 100% the level of foreign direct investment allowed in single-brand retailers.

However, the government has now ratified the foreign direct investment rule, which will open up the market to the likes of Ikea, Starbucks and Marks and Spencer. One requirement made of them is that they have to source 30% of goods from local companies.

With companies looking for new revenue streams and local souring high on the agenda at the moment, you would think this would be met with jubilation, but put the champagne on ice because it might not be that straight forward.

The government has insisted that the local companies that must be used are those that have investments of no more than $1m in plants and machinery which seems like a very low level considering the scale of the operations that will be looking to invest.

Government officials have said that, as yet, no concerns had been raised and if they were, they would look again at investment levels.

"No such issues cropped up during our stakeholder meetings. Let these brands enter the country first, and if they have some genuine problems, we will tackle them," said department of industrial policy and promotion secretary PK Chaudhery, according to India’s Economic Times.

With the monetary rewards on offer it may be that the benefits outweigh any potential concerns but one thing is for sure, the procurement functions of businesses looking to take advantage of the growing Indian market will be doing their homework on supplier networks.

Tim Burt is premium content writer for Procurement Leaders. Subscribe to the magazine click here.