While the government is all set to open doors to foreign direct?investment (FDI) in multi-brand retail subject to a few conditions, including a minimum 50% investment in back-end infrastructure, the finance?ministry has pitched for a monitoring mechanism to ensure that investors comply with the conditions.
A ministry official, requesting anonymity, said, ?The DIPP (deartment of industrial policy and promotion) has not proposed any?monitoring mechanism for proposed FDI in multi-brand retail. If no system is put?in place, then what is the assurance that these players will work?towards improving infrastructure??
The committee of secretaries (COS) headed by cabinet secretary?Ajit Kumar Seth has recently cleared 51%?FDI in multi-brand retail with a few riders.
The key conditions on which the approval was given by the CoS include proposals below the minimum?threshold amount of $100 million would not be considered.
It would also be?mandatory for investors to spend 50% of the amount towards?building and maintaining back-end infrastructure such as warehouses,?cold-storage and transportation to set up world-class facilities.?Retailers will also not be allowed to set up shops in cities that have?a population of less than one million.
A senior official in DIPP confirmed FE that no monitoring body has been?proposed or appointed under the policy to ensure compliance with the conditions spelt out.
?The companies coming?in with FDI will have to self-declare the investments made in the?back-end. There will be no monitoring body for it.?
Meanwhile, analysts say that the investment in back-end infrastructure is the way the consumers and farmers would benefit from allowing foreign investment in the sector.
?Since?investing 50% of the investment in the back-end will be legal obligation, the?companies will have to fulfill it and any violation could be dealt with seriously. I?feel there should be a monitoring body?to ensure that the investors indeed make the back-end infrastructure investments,? Crisil principal economist DK Joshi added.
The opening up of retail has had strong backing from Prime Minister Manmohan Singh, finance minister Pranab Mukherjee, and Planning Commission deputy chairman Montek Singh Aluwalia, among others, who said that it would l help contain high food inflation.
In May, an inter-ministerial group on inflation, headed by the chief economic advisor in the finance ministry Kaushik Basu had strongly advocated opening the sector to foreign investment, as it feels the layers between the farm gate and the consumers needs to be cut through a strong supply chain and backend logistics. Basu feels opening up the sector will provide long term solution to the inflation crisis faced by the country.
According to an Icrier report, India’s total retail sector is estimated at $590 billion, with the unorganised sector accounting for $496 billion.
