If you are Ikea or Starbucks and you wish to open stores in India, the government currently requires you to find a a local investment partner who would own 49 percent of the India business. Companies ranging from Reebok to McDonalds have entered the India retail market under these terms but many others have held back. This quarter there is news that India is seriously considering permitting 100 per cent foreign direct investment in single-brand retail.

India’s Commerce minister Anand Sharma said that IKEA had asked the government to hike FDI limit in single-brand retail. “IKEA sources almost 30 per cent of its products from India. It will create jobs in India. The government is considering it.”

Note that this does not affect “multi-brand retail” such as Wal-mart, Tesco or Best Buy. It is also unclear if the change considered in a one-time exception for Ikea, if anyone sourcing from India will be granted the same terms or if there is a general rollback to permit 100 percent foreign investment in all single-brand retail.

Francisco Sanchez, US Under-secretary of Commerce for international trade, said that Washington wants a removal of India’s ban on foreign investment in multi-brand retailers, which prevents Wal-mart and other international retailers from opening stores for Indian consumers.  He asserted that permitting greater foreign entry into the retail sector would improve supply chain and logistics networks, such as roads and warehouses.

Francisco Sanchez UnderSecretary of Commerce for International Trade

On hist first official visit to India, Sanchez mentioned that the US exports to India doubled between 2005 and 2009 and have increased 20 percent in the first seven months of 2010. ‘Growth will accelerate in emerging metropolitan sectors like Pune and Nagpur and new markets will form for the US and Indian businesses,’ Sanchez said, speaking in Mumbai as part of a three-day trip in advance of President Obama’s visit to India in November.  The India Expert believes that US Exports to India will accelerate in the next five to ten years, see my article in Business Week on the subject.

In April 2008, Bharti Retail opened its first “EasyDay Market” retail store in founder Sunil Bharti Mittal’s mid-sized home town of Ludhiana in Punjab. Eschewing the major metro cities that have been the focus of other  Indian retail chains such as Spencers, Reliance and More.  Since then, CEO Vinod Sawhny has led the opening of two more stores, both in North India. With a focus on value retailing, the company has targetted Punjab and Haryana and may expand to neighboring northern states of Uttarakhand, Delhi and Himachal Pradesh. This avoids locations where Pantaloon’s Big Bazaar and Food Bazaar are entrenched and also builds near Mittal’s traditional strongholds. Many FMCG  (CPG) manufacurers have located their factories in states such as Uttarakhand and Himachals for tax reasons, so the supply chains for packaged products won’t be that long.

As a value retailer, it makes sense that Bharti gets about 15 percent of its sales from private labels. Sawny expects to double that percentage to 30% in an interview with the Indian newspaper DNA.

Separately Bharti has a joint venture with the world’s largest retailer Wal-mart. But Indian law requires that stores that are run by this joint venture offer products for sale only to businesses and not to consumers. They are being referred in India as CnC or Cash-and-Carry wholesale stores. The first such wholesale location opened in the border city of Amritsar.