Multi-brand retail FDI to kick in after polls with minor tweaks

Written by Sunny Verma | Himani Kaushik | New Delhi | Updated: Jan 7 2012, 07:01am hrs
The government has never removed foreign direct investment in multi-brand retail from its immediate policy agenda, and is just biding time to implement the Cabinet decision announced in November, two top policymakers indicated to FE in separate interviews. The proposal will be tweakeda bit to make it acceptable to all sections, but the government wont backtrack on giving majority ownership to foreign investors.

Once the state elections are over, the revised proposal would be implemented. Assembly elections are scheduled to be held in five states Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur between January 30 and March 3.

Chief economic adviser Kaushik Basu said: Once the political compulsions are behind us, things will begin to move (on the porposal to allow 51% FDI in multi-brand retail), adding that the government might have to modify the proposal to ensure its acceptability to all allies. Basu has been vocal about how retail FDI would help control food prices even as farmers get more remunerative prices for their produce.

Separately, department of industrial policy and promotion (DIPP) secretary PK Chaudhery said on Friday that 100% FDI in single-brand retail (where 51% FDI is allowed at present) would be notified soon.

Admitting that both supply-side and demand factors are important components of inflation in the Indian context, economic affairs secretary R Gopalan told FE that there was a need to improve the supply response to meet higher levels of effective demand in the economy. The increase in productive capacity is at the root of addressing inflation, he said, adding that some of the short-term measures that the government could take include removal of perishables from the APMC Act.and minimising wastages through supply-chain management which could be possible with multi-brand retail FDI.

If the proposal to allow 51% FDI in multi-brand retail is implemented, global giants like Wal-Mart, Carrefour and Tesco could invest in the sector, bringing efficiencies in the supply chain and reducing wastage through better storage facilities. Global owners of brands like Adidas, Nike, Louis Vuitton, Gucci, Costa Coffee, Hermes, etc, will be able to buy out their Indian partners if 100% FDI is permitted in single-brand retail.

Basu said, In FDI in multi-brand retail, we worked out a plan which to me seemed very, very reasonable. We were not being foolish and saying open the doors that let foreign players do whatever they want to do. (We were giving them access to) restricted areas. They would have to source a lot of their products domestically, leaving a lot of space for the domestic players.

Shares of retail companies rallied on the bourses on Friday on Chaudherys comments. The share price of the Kishore Biyani-led Future Groups Pantaloon Retail surged 6.6% to settle at R141.40, while Provogue (India) closed higher by 9.31% at R22.30. Koutons Retail gained 6.01%, Shoppers Stop ended 5.81% higher and Vishal Retail rose by 4.96%.

Basu did not hide a sense of deep disappointment over FDI in multi-brand retail coming unstuck.

Stating that coalition politics has apparently given way to coalitional with a vengeance, he said the policy structure of multi-brand retail presented by government was very reasonable. Not only the Opposition but also key allies of the UPA government opposed the policy on the grounds that it would lead to job losses in the retail sector.

Source said the DIPP has already started wider consultations with stakeholders on multi-brand retail FDI and the consumer affairs department is also working to bring all consumer organisations on board.

Analysts say foreign investment in mutli-brand retail would lead to increased transfer of technology, enhanced supply chain efficiencies, create thousands of new jobs and lower inflation. Besides, access to capital would help organised retailers lower debt on their books and prepare for future growth.