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Monday, 13 June 2011 |
 The Indian government is finally taking concrete steps to allow foreign direct investment of up to 51 per cent in multi-brand retail stores. It has moved a proposal to this affect but of course with some caveats. The department of industrial policy
and promotion (DIPP), which falls under the ministry of commerce and industry has now mooted a proposal to throw open India's Rs 79,000 crores retail market to multinational retailers, such as Wal-Mart, Carrefour and Tesco, among others. At present, FDI in multi-brand retail business is prohibited in India.
 According to the new proposal, the plan is to open it in a similar manner as the existing framework for single brand retail. However, at least 50 per cent of the total investment should be made for creating back-end infrastructure, such as building cold storage chain and warehouses. Also a statement of accounts would have to be filed with the Reserve Bank of India, with a copy to the Foreign Investment Promotion Board (FIPB), disclosing clearly that at no point in time investment in back-end infrastructure is less than 50 per cent. Investment in such back-end infrastructure need not necessarily be made by the same entity that is making the FDI. It could also be made separately by an outsourced entity, specifically commissioned for this purpose.
Moreover, it says the minimum FDI to be brought into a project would be $100 million. Also, retail stores will have to be set up in cities with populations of more than 10 lakh. An area of 10 km around the municipal/urban agglomeration limits of such cities could also be included in the permissible location. An interesting deviation is that this will not be foisted on anyone. Front-end retail outlets will be set up only in those states which agree to allow FDI in multi brand retail.
That is not all, it suggests that 30 per cent of the sales turnover should be made to small retailers, either directly or through wholesale cash-and-carry units set up for this purpose. State governments will be allowed to set conditions for integrating the kirana or mom and pop stores into the value chain. This is important because the UPA chairperson Sonia Gandhi has in the past asked the government to tread cautiously on opening up FDI in multi brand retail because it could impact neighbourhood grocery stores. The new proposal suggests that at least 30 per cent of the value of manufactured items procured (excluding food products) should be sourced from the small and medium enterprises (SME) sector, once again ring-fencing the lowest common denominator in the food chain. Meanwhile the DIPP has asked government departments to put in place frameworks to monitor compliance with these conditions.
The proposal is expected to come up for cabinet approval in the next few weeks. Of course, the government may have to face tough opposition before fully opening up the market to global retailers. Already the main opposition party BJP has been making a noise as they feel it will lead to large scale unemployment and affect the mom and pop store owners. |
