India considers foreign investment in multibrand retail(69655)

Multi-brand retail FDI back on table

The Indian government has framed the formal debate on the question of foreign investment in multi-brand retail in populist terms, moving forward gingerly on a deeply sensitive political issue.

Job reservations for local youth, stiff local sourcing requirements and mandatory investments in backward linkages figure prominently in a discussion paper unveiled on Tuesday by a government keen to appease constituencies opposed to foreign presence in the retail sector.

We want to approach foreign direct investment (FDI) in retail with some amount of caution. That is why we have decided on a calibrated approach, said RP Singh, secretary in the department of industrial policy & promotion, a part of the commerce ministry.

The discussion paper, which will be open for comments from stakeholders until July 31, does not suggest an upper limit on foreign investment in multi-brand retail.

Foreign investment in multi-brand retail is presently not allowed but multinationals can invest up to 51% in single-brand retail. Large multinational retailers such as US-based Wal-Mart and Germany s Metro AG that operate in wholesale cash-and-carry ventures in India have been clamouring for long to open up multi-brand retail to foreign investment.

We need to ensure that we get benefits of FDI in the back-end infrastructure and not just have investments in front-end. Right now we are not very sure whether FDI in retail would be very revolutionary, Mr Singh observed.

Earlier attempts to open up retail trade, which contributes more than 8% to India s economic output, have met with stiff resistance. The Left parties and the main opposition BJP are completely opposed to opening up multi-brand retail, a sector that employs millions and is dominated by small kirana stores.

A parliamentary standing committee headed by BJP leader Murli Manohar Joshi has recommended a complete ban on FDI in retail. However, this UPA government is not dependent on the support of the Left parties for its survival and has been more open to the idea of opening up multi-brand retail to foreign investment.

If the policy process is strategically done, it can create a synergy between the small retailer and the larger retail chains, said Rajan Bharti Mittal, vice-chairman and managing director of Bharti Enterprises and president of the Federation of Indian Chambers of Commerce and Industry. Bharti operates a cash-and-carry joint venture with Wal-Mart.

The discussion paper said foreign investment is imperative to meet the huge funding needs of the sector to provide dynamism and efficiency and generate employment in rural areas.

India is losing fruit, vegetables and agricultural produce worth Rs 1,00,000 crore every year and adding cold chains and back-end infrastructure could reduce losses by more than half, it added.

There is an urgent need to encourage foreign investment in the sector. We need to particularly encourage financial investors and private equity, said BS Nagesh, chairman of industry body Retailers Association of India and vice-chairman of retail firm Shoppers Stop.

India considers foreign investment in multibrand retail

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