The government may change the policy on foreign direct investment (FDI) in India’s single-brand and multi-brand retail sectors at one go, a senior official of the department of industrial policy and promotion (DIPP) told FE.
As of now, India permits 100% FDI in cash-and-carry segment, 51% in single-brand retail and none in multi-brand retail. The commerce ministry’s department of industrial policy and promotion (DIPP) recently circulated a Cabinet note on allowing FDI in multi-brand retail. Sources told FE that prior to this, commerce minister Anand Sharma had discussed the issue with senior members of the ruling UPA alliance, including chairperson Sonia Gandhi, Prime Minister Manmohan Singh and finance minister Pranab Mukherjee.
Meanwhile, there has been some movement on the single-brand front as well. Sharma has hinted at an early decision on a higher cap for this sector, for which the ministry is conducting consultations.
The DIPP official added: ?The Cabinet note incorporates the riders proposed by the committee of secretaries on July 22. We hope to receive responses (on multi-brand retail) from all ministries in two weeks, after which we will prepare a detailed Cabinet note.? The secretaries’ panel had recommended a 51% cap on FDI in multi-brand retail, and a minimum foreign investment of $100 million.
The DIPP official played down the chances of raising the 51% cap in single-brand retail to 74%, adding several companies, mostly from Europe, had requested 100%. ?We are considering their opinion,? he added.
The DIPP note highlights the proposal from the ministry of micro, small and medium enterprises (MSMEs) that MNC retailers source at least 30% of goods from MSMEs. In order to comply with the rules of the World Trade Organisation, these MSMEs could be Indian or foreign. The note also flags off the secretaries’ panel recommendation that at least half of investment and jobs arising from the entry of MNC retailers go to rural areas. The ‘ panel had also recommended half the investment be deployed in back-end infrastructure like warehousing and cold storages.
The panel had suggested that MNC retailers be allowed to open shop even within 10 km of cities with over one million population, since large stores require vast spaces which may not be available within cities. The recommendations came after nearly an year of the DIPP proposing opening the sector to FDI.
A bevy of foreign retailers including Wal-Mart of Bentonville, Arkansas, US, is waiting to enter India’s booming retail sector, estimated at about $600 billion by the Indian Council for Research on International Economic relations. Only 4% of India’s retail market is in the organised sector, leaving vast scope for large multinational players.
