Tuesday, June 26, 2007

The Continuing Controversy Over Retail Trade

The xenophobia over retail trade has manifested itself once again. The Government (Department of Commerce & Industry) has asked Starbucks to modify its application to enter into a franchise agreement with Kishore Biyani’s Future Group by converting the structure into one where Starbucks directly invests in an Indian entity to the extent of 51% under the single-branded retail route. An editorial in today’s Economic Times has sharply criticized this decision.

Without being drawn into the details of the proposal or its merits, I am struck by a very simple proposition. When the relevant regulations permit foreign retailers to enter into the Indian market through one of two structures, i.e. (i) franchise arrangement, or (ii) investment in an Indian entity to the extent of 51%, should the option of choosing either of these not vest with the retailer? Is it permissible for the Government to compel the parties to choose one option over the other when both are equally available?

It is ambiguities and uncertainties such as these that are keeping several prominent retails brands out of India, although the Indian retail market is burgeoning.
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