|
Wednesday, 30 March 2011 |
 The Economic Survey 2010-11 has favored a phased opening of foreign direct investment (FDI) in multi-brand retail to address the concerns of consumers, farmers and declining FDI inflows. The survey foresees projects orth Rs 24,143 crores
to be completed adding a capacity of 168.60 lakh sq. ft. A total of 94 proposals have been received till May, 2010, of which 57 have already been approved. Global retail chains such as Wal-Mart, Carrefour and Tesco were among the first to pitch for opening FDI in multi-brand retail to tap the booming business potential in urban India today. The latest on this is that the government is looking at allowing FDI in multi-brand retailing as part of a slew of measures to make India more attractive to overseas investors. However, the finance minister Pranab Mukherjee has said that the government will not take an ‘off the cuff’ decision on the contentious issue. Given the complex nature of the issue, the government will also seek the views of state governments and arrive at a larger consensus before taking a decision.
 However, experts say the thinking is towards permitting it in a phased manner beginning with metros and giving incentives to the existing retail shops to modernize which could help address the concerns of farmers and consumers. A gradual opening up would be a better strategy with global chains first allowed to open stores in metros, with wholesale cash-and-carry being limited to smaller towns and cities, at least for the moment. The move being piloted by the department of Industrial Policy and Promotion is only at the stage of discussion as of now. It will get clearance once there is consensus within the ruling UPA. At present India allows 100 per cent FDI in cash-and-carry wholesale trading, while it is prohibited in multi-brand retail. Up to 51 per cent FDI has been allowed in single-brand retail since 2006.
The Indian government is expected to open up the retail sector with certain restrictions so that domestic players are not affected adversely. Firstly, foreign chains will have to enter into a joint venture with local retailers, with a capping on FDI holding at 49:51 per cent which will help to transfer the technology and global best practices. Later, the equity component will be enhanced to 100 per cent for foreigners. Secondly, there will be a minimum 50 per cent investment on setting up back-end supply chain. Thirdly, there will be a limited geographical reach with foreign retailers being allowed to operate in only around 40 cities across India with a large population of more than 1 million, where already domestic modern retail is coexisting well with traditional trade. Also local SME’s will be encouraged with a minimum percentage of sourcing that would have to be from domestic SMEs to mitigate the risk of global retailers outsourcing procurement to their lower-cost foreign suppliers.
Although many fear that traditional retail may be affected by FDI, most feel it is a welcome break in a rapidly developing modern India. This move will help control intermediaries such as wholesalers and mandis who sometimes create artificial price food inflation and break down the demand-supply chain as well as be beneficial for the masses and producers. It will also have a limited impact on the traditional Mom & Pop stores and in general be beneficial for the Indian economy. |
