The Foreign Investment Promotion Board (FIPB) is learnt to have rejected the proposal of the Zara group, a leading international retail chain, at its meeting here on Friday. Zara Holdings Netherlands had submitted its application to FIPB, a key wing in the finance ministry that clears companies’ FDI proposals, for opening the Massimo Dutti brand of stores in India.
According to a senior government official, FIPB rejected the proposal citing violation of a rule framed by the Department of Industrial Policy & Promotion (DIPP) that says an investor must own the brand it is proposing to bring to India. In the case of Massimo Dutti, the application was made by Zara Holdings Netherlands, but the brand is owned by Euro 13.8-billion Spanish retail chain, Inditex.
The Netherlands is one of the countries with which India entered into the Bilateral Investment Promotion & Protection Agreement (BIPA), a pact meant to promote and protect, on reciprocal basis, the interest of investors covered. The pact was signed in December 1996.
While the current proposal has been rejected, the government is making efforts to remove the hurdles in relation to the DIPP rules on investors owning the brands they propose to bring to India. The finance ministry, it is learnt, is in consultation with the commerce ministry and DIPP to make the required changes to the rules.
The government had, even earlier, raised queries related to the ownership structure of Zara Holdings Netherlands and Massimo Dutti. Inditex and the Tata group’s retail chain, Trent, had signed an MoU last year to bring Massimo Dutti to India. According to the MoU, Massimo Dutti would be a joint venture (JV) between Zara Holdings (a unit of Inditex) and Trent.
A source close to the JV on Friday told Business Standard that Trent and Zara would wait for clarity on the rules. Plans for Massimo Dutti stores in India were linked to clearance from the government, he added.
Inditex already has its flagship Zara stores in India through a 51:49 joint venture with Trent. Inditex, which has 5,618 stores in eight formats around the world, had signed an agreement with the Tata group in February 2009 to form the JV to launch Zara outlets in India and opened the first store in 2010. Currently, there are eight Zara outlets — across Mumbai, Pune, Bangalore and Delhi.
Globally, the eight formats that Inditex operates in are Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque. Trent and Inditex have done the spadework to open Massimo Dutti stores and are planning to open four-five outlets in the coming months, say sources. Massimo Dutti had 573 stores across 50 countries as of the end of 2011.
‘Fabindia does not need board approval for FDI’
In another decision, FIPB on Friday asked Fabindia, a leading Indian retailer of ethnic fashion, to withdraw its application for approval from the board. It said Fabindia was an Indian single-brand chain and did not require a clearance from the board, as the brand would continue to be owned by Fabindia Overseas. The company had sought clearance to induct up to 49.5 per cent FDI in the company. Currently, up to 100 per cent FDI is allowed in single-brand retail, and some of the difficult conditions linked to sourcing kick in after the foreign investment limit exceeds 51 per cent. FIPB had deferred its decision on Fabindia in its meeting held on May 9.