Stage set for Cabinet to approve FDI in retail

Written by fe Bureau | New Delhi/Mumbai | Updated: Nov 18 2011, 07:04am hrs
The Union cabinet is likely to discuss opening the multi-brand retail sector to foreign investment next week, official sources said. All relevant ministries and departments have sent their affirmative comments on the draft Cabinet note circulated by the department of industrial policy and promotion (DIPP).

The DIPP is looking at getting the issue of FDI in multi-brand retail cleared at the earliest as a committee of secretaries (CoS) has cleared it and other ministries have agreed, an official said.

The draft note follows the recommendations of the CoS, which suggested 51% FDI in the politically-sensitive sector with several riders, including a minimum investment of $100 million. Further, at least 50% of the investment and jobs should go to rural areas and entities with FDI should source at least 30% from micro, small and medium enterprises. The CoS also suggested that at least half of the minimum overseas investment go into back-end infrastructure and that global chains be allowed only in 36 large cities with a population above 1 million.

Said Kishore Biyani, CEO, Future Group: This creates an opportunity for consumption-led growth and will benefit the entire industry. Foreign players interested in the consumer side of retail are keen on aligning with Indian partners as they understand the terrain and customers better. So its a win-win situation for both.

Said Thomas Varghese, chairman of CIIs retail committee: This helps on two counts. First, it will be help the economy as more investments will come to the back-end. It will also create more jobs in the country. Secondly, FDI will be a tremendous boost for cash-strapped retail companies, which need funding. This will allow them to dilute their holdings and leverage their balance sheet.

Ficci secretary-general Rajiv Kumar said it was high time the government finalised the policy on FDI in multi-brand retail, adding it would be a crucial reform.

I hope that Opposition and the rest of the political spectrum will not become an impediment to this because its a crucial reform for the Indian economy, he added.

A decision on allowing FDI in multi-brand retail has been hanging fire for long, for fear that it would impact neighbourhood shops which account for over 90% of $590 billion retail trade.

Retail stocks were volatile during the day. Pantaloon Retail rose over 8%, closing at Rs 182.85. Trent inched up 0.16% to Rs 1038.15, while Vishal Retail saw an upswing of 2.19% to Rs 16.30. Koutons saw an increase of 1.09%, closing at Rs 18.6. Shoppers' Stop closed 2.21% down at Rs 349.45, Provogue India closed 1.75% down at Rs 25.20 and Cantabil down 5.31% at Rs 20.5.