Foreign private equity (PE) firms may be in for a jolt. If the government has its way, PE funds will not be allowed to invest in Indian retail companies which are franchisees of foreign brands. They will not even get to invest in retail companies where foreign investment is allowed.
Currently, the Indian government allows global brands to invest up to 51% in Indian retail companies provided they sell all products in their outlets under a single brand.
However, PEs will not get to invest even in this category because only the owner of the global brand is permitted to invest in the Indian company. The one exception to this may be food and beverage retail where 100% FDI is allowed.
Whether foreign private equity funds can invest in retail companies, franchisee-led or foreign-owned, has been a grey area. The matter came to the fore when a prominent franchisee filed an application to the Foreign Investment Promotion Board (FIPB) seeking permission for fund infusion from a foreign private equity firm.
The board rejected the proposal as the Indian company was the franchisee of a global brand targeted at children. The company was asked to alter the proposal.
“At a stage when we were hoping that the government would further liberalise the foreign investment policy by raising the FDI cap in certain sectors, this move has come as a step backward,” said an industry expert in the PE space.
In the first quarter of FY09, private equity players invested $2.8 billion, a 50% growth over corresponding period last year.
Source: Economic Times