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Tuesday, 24 August 2010 |
Two of the world’s top retailers, Wal-Mart and Carrefour, vying for a cut in India’s organized
retail pie, have asked the government to allow up to 51 per cent foreign investment in multi-brand retail. India allows 51 per cent foreign direct investment (FDI) in single-brand retail and 100 per cent FDI in cash-and-carry or wholesale trading.
Wal-Mart has partnered Bharti Group to operate cash-and-carry wholesale stores and intends to continue the tie-up for multi-brand retailing. Bharti Wal-Mart believes that FDI in multi-brand retail should be permitted without any restrictions. They believe it will create conditions for greater flow of investments to the back-end with related benefits for farmers, small businesses and consumers.
Carrefour, which is also drawing up plans to roll out wholesale formats, also supports a more relaxed FDI policy. It feels any cap or restrictions on FDI in this sector may result in potential loss of opportunities of inclusive growth for the retail sector and that the cap should be such that a foreign retailer is entitled to make a minimum of 51 per cent investment with rights to manage the company and bring about efficiency in operations and induct the best industry practices.
Given the state of the supply chain in India, much of the investment in the back-end would be up-front, particularly in the initial years. A fixed percentage of investment on the back-end could therefore, leads to a misallocation of resources and takes away from where they are most needed to create efficient supply chains. Any stipulation for minimum investment of any fixed percentage in the back-end infrastructure, beyond what the foreign retailers are planning to do, would put undue and additional pressure on the profitability margin expected from retail operations and negatively influence the viability of the operations. |
