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Secretaries’ panel clears 51 per cent FDI in multi-brand retail

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A committee of secretaries (CoS) has recommended 51 per cent foreign direct investment (FDI) in multi-brand retail, albeit with some stiff riders, paving the way for the entry of some of the world’s biggest retailers such as Wal-Mart, Carrefour and Tesco to set up shop.

At present, India only allows 100 per cent FDI in cash & carry wholesale trade — that is, business-to-business (no individual buyers) and 51 per cent in single-brand retail. No FDI is allowed in multi-brand retail.

The secretaries’ decision still needs to go to the Cabinet Committee on Economic Affairs for the next step to be taken.

Earlier, discussions within various arms of the government and between the government and trade representatives have suggested various conditions before allowing this partial opening up of retail sector.

These include foreign investors being asked to invest at least 50 per cent in back-end infrastructure such as warehousing; and procurement of at least 30 per cent products from micro, small and medium enterprises.
Also, there has been a proposal to allow FDI in multi-brand retail in only those cities where the population is over 10 lakh.
Thomas Varghese, CEO of Aditya Birla Retail, said the move is a positive change and is “welcomed by the industry.”

Kumar Rajagopalan, CEO of Retailers Association of India, an apex body representing the industry, called it another step in the right direction.

“But there is still lot of detailing to be understood and a whole lot of repercussions to be worried about. But at least the voice is being heard in a manner where there is some seriousness about the fact that foreign direct investment in multi-brand retail should be allowed for,” Rajagopalan said.

Arvind Singhal, managing director, Technopak Advisors, a consultant to retailers, was circumspect: “The secretaries’ clearance is still a recommendation and the cabinet is not obliged to accept it. So the next steps will be keenly watched,” Singhal said.

Darshan Mehta, head of Reliance Brands, said he was not aware of the developments, as was Vikas Purohit of Planet Retail.

The proposal to open up the retail sector has traditionally evoked strong reactions from the kirana traders and political parties such as the Bharatiya Janata Party (BJP) — stakeholders believe the arrival of foreign players would kill the small mom & pop stores.

BJP president Nitin Gadkari has said earlier that any such liberalisation would adversely impact the interests of these small and unorganised retailers.

BJP-ruled states have joined in, opposing any opening up of this sector. Not just small retailers and political parties, even some big Indian retail conglomerates have also been opposed to such a move, citing the absence of any level playing field.

For the past year, the government has been pushing hard to open the sector in the backdrop of rising food price inflation.

The Department of Industrial Policy & Promotion had floated a discussion paper on this in July last year, to generate a debate.

Another inter-ministerial group under chief economic adviser Kaushik Basu, has already moved a draft proposal on this issue, arguing the importance of allowing FDI in organised retail to check price rise.

Within the government, the Planning Commission and ministry of agriculture are ready for 51 per cent FDI. The department of consumer affairs has supported the case for a 49 per cent cap. The micro, small and medium enterprises ministry has said the government should limit FDI in multi-brand retail to 18 per cent. The department of economic affairs has not stated its position.

Source – DNA

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