Allow FDI in multi-brand retail

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New Delhi: While the UPA regime has so far succumbed to political pressure and desisted from opening up multi-brand retail to foreign direct investment, the Economic Survey has suggested that the time has come for the government to allow FDI in multi-brand retail.

The Survey has also made a case for a strong defence industrial base in the country and proposed increasing the FDI limit in defence from the current 26% to 49%. It has further suggested allowing a 100% FDI on a case-by-case basis in high technology, strategic defence goods, services and systems that can help eliminate import dependence.

Making case for a labour intensive growth, the Survey clearly said the labour laws and labour regulations needed to be reformed especially in the light of the not-so-encouraging employment trends in the manufacturing sector that needed to be reversed. Though the government always debated a further uncapping of the single brand retail to almost 100% from the current 51% limit in niche areas such as consumer durables, electronics, stationery and sports equipments the Survey has boldly suggested the opening up of the multi-brand retail where currently no FDI is allowed. While the proposal to increase FDI in defence is largely because since the opening up of defence industry for foreign participation in 2001, very little by way of FDI has entered India’s defence industry.

Indian forces are also the world’s largest importer of defence equipment, with their hardware arm importing goods worth $6 billion.

Specifically to retail, the Economic Survey has suggested that the opening up of multi-brand retail can be started with food retailing. This is an interesting proposal considering that food retailing constitutes over 60% of the retail market in the country and that organised retailers such as Reliance Retail had to face closure in Uttar Pradesh owing to a perception that this retail trade would hurt a large number of vegetable vendors who wouldn’t be able to match competition from large corporate houses.

The Survey has also proposed riders such as the opening up of multi-brand retail subject to the condition that the international retailers jointly develop modern logistics along with the domestic retailers. It has further stated that the retailers must open wholesale outlets where the unorganised retailers can purchase the products in order to provide the unorganised retailers access to lower priced produce procured through the modern retailers supply chain.