Foreign direct investment (FDI) up to 49% in multi-brand retail is welcome but it should compulsorily be through infusion of fresh capital, 75% of which is spent on back-end infrastructure/supply chain, logistics and technology upgrade, the consumer affairs ministry has said.
In its response to the department of industrial policy and promotion (DIPP) consultation paper on the subject, the ministry also said that small retailers like kirana stores be encouraged to become franchisees of FDI-funded retailers. The small retailers should also be provided access to the logistics and supply chain set up by FDI-funded retailers, it stressed.
Batting for opening multi-brand retail to foreign investment, the ministry, headed by Nationalist Congress Party supremo Sharad Pawar said that the sector should be allowed to have FDI up to 49% with the above riders. The idea is to have a balanced policy that protects the interests of mom-and-pop stores.
The ministry is the first government wing to respond to the consultation paper, sending a copy of its response to the finance ministry as well. The finance ministry and the nodal DIPP have all along been in favour of allowing FDI in principle, but want a larger consultation to take place since there?s a lot of political opposition to the move.
Currently, while FDI is prohibited in the multi-brand segment, it is allowed 100% in the back-end cash & carry segment and 51% in single-brand retail. US-based retailers like Wal-Mart and Germany?s Metro AG operate in the country through their cash-and-carry outlets which are open only for registered wholesale buyers.
In fact, the consumer affairs department has already floated a consultation paper to set up a retail sector regulator at the central and state levels. The proposal entails that regulators at state level demarcate zones in various cities for setting hyper markets and super markets. This would ensure that there are separate zones for them and the local kirana shops. The regulators would also broadly oversee pricing of products so that small retailers do not fall prey to predatory pricing by the bigger ones. The regulator would also check cornering of real estate space by big retailers to block competition from smaller players.
In June, the DIPP had circulated a discussion paper on the issue to build consensus among all stakeholders.
The government has been trying to open the retail sector to FDI in bits, but has not met with much success so far. In 2007, it tried to allow 51% FDI in specialty retail like consumer electronics, sports goods, building equipment and stationery products but could not go ahead due to political opposition.
Earlier, a study conducted by economic think-tank ICRIER on the impact of organised retail on kirana stores concluded that big, organised retail, Indian or foreign, did not pose any direct threat to kirana shops, but the government should make finance easier for the latter to compete with the former.
