Centre to seek states? consent on FDI in multi-brand retail

The Centre has decided to reach out to states to elicit their support for its plan to allow foreign direct investment in multi-brand retail.

The Centre has decided to reach out to states to elicit their support for its plan to allow foreign direct investment (FDI) in multi-brand retail. A Committee of Secretaries (CoS) headed by Cabinet secretary Ajit Kumar Seth met here over the issue on June 15 and resolved that states should be encouraged to give their consent for 51% FDI in multi-brand retail as the measure would have multiple benefits, including an easing of inflation.

States? consent is necessary for the policy change as trade is a state subject.

Since allowing FDI in multi-brand retail is a politically sensitive proposal, several states, particularly those ruled by the Bharatiya Janata Party (BJP), might have reservations over letting foreign retailers to open their front-end chains. Therefore, the Centre is keen that before announcing the policy shift, it should get the key states on board.

The Department of Industrial Policy and Promotion (DIPP) had mooted the opening up of the multi-brand retail sector for foreign players in July last year, with a set of riders like compulsory use of a part of the foreign money for creation of supply and storage infrastructure.

FDI in multi-brand retail has been supported by the inter-ministerial group (IMG) on inflation, headed by chief economic advisor in the finance ministry Kaushik Basu. The group feels that such a step would help bring down inflation significantly, as it would bridge the gap between the farm-gate price and retail price of food products by improving the supply chain and back-end logistics according to international parameters.

An official source said that at the CoS meeting, all the secretaries were unanimous in their view that retail be opened up for foreign investors. However, before preparing a final Cabinet note, the CoS will meet again to finalise the modalities.

Experts feel that if a foreign retail chain company has to seek permission from each state, then the policy could end up in a fiasco. Such a situation will increase the compliance procedures for the foreign company.

Interestingly, several big chains like Walmart, Tesco and Carrefour have set up their joint ventures in India and are waiting for the government to roll out a policy decision after which they can make a full-scale entry into the Indian retail market.

Currently, India allows FDI only in single brand retail chains with a cap of 51%, while 100% FDI is allowed in the wholesale cash-and-carry format.

According to industry reports, the total retail sector in India is estimated at $590 billion out of which $496 billion is unorganised.

Policymakers and economists are also of the view that if FDI in multi-brand retail is allowed then India might be able to garner a substantial hike in the country?s inflow of foreign investment, which is currently on a declining spree and has slipped by 25% to $19.42 billion in 2010-11 from a whopping $25.83 billion in the previous fiscal.

The DIPP, in its discussion paper, had given various other suggestions as well, including the possibility of including a minimum FDI of $100 million (about R450-460 crore), half of which must be invested in the back-end infrastructure like cold storage, soil testing labs and seed farming.

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First published on: 20-06-2011 at 02:14 IST