After the foreign investment promotion board rejected a
proposal by Zara Holding, to retail the luxury brand Massimo Dutti citing brand ownership issues, the Department of Industrial Policy and Promotion (DIPP) has decided to rework the current rules that are becoming a hurdle to global brands interested in investing in the India. The ministry fears that the rule might end up being the reason for rejection for many eager foreign investors.
In its June 29 meeting, FIPB, the body that clears foreign investment proposals, rejected a proposal by Zara Holding BV to set up a 51 per cent joint venture for single-brand retail trading. The joint venture proposed to retail Massimo Dutti, an apparel brand owned by Spanish company Inditex, the world’s largest clothing retailer, but the investment in India is being made by its subsidiary Zara BV. Though commerce and industry minister has earlier said that the Zara proposal was kept on hold, but FIPB went ahead and following the rules of single-brand retail policy strictly rejected the proposal.
Now, according to the ministry, the rules must be changed to accommodate investments in cases where the brand is owned by the subsidiary, since most of the businesses, who seek to apply for FDI in single brand retail have had similar format. Now the proposed changes will be sent to the cabinet for its approval.
The government approved 100 per cent FDI in single-brand retail last year, compared with 51 per cent earlier, but had imposed strict conditions including mandatory local sourcing. Contrary to expectations, very few investors have come forward deterred by the stringent norms. Ikea, Skechers, Pavers England, Promod and Tommy Hilfiger have expressed their willingness to invest but have complained of norms that lack clarity.