The Hindu Business Line : FDI in wholesale: Many players, but low inflows

WHILE experts continue to debate on the prospect of foreign direct investment in the retail trading sector, the lure of profit is already drawing foreign firms in hordes to invest in the wholesale trading sector where 100 per cent FDI is already permitted.

But while it is attracting a large number of entities, numbers reveal that the actual impact is miniscule.

Though the number of foreign firms entering the Indian wholesale trading sector is as high as 45 per cent, of the total number of foreign firms approved to bring in FDI during the first four-and-a-half months of the current financial year, this sector accounts for a meagre 3.80 per cent of the total FDI approved during this period.

From April 1 to August 15 this year, the Finance Minister, Mr P. Chidambaram, approved 106 FDIproposals across all sectors following recommendations from the Foreign Investment Promotion Board (FIPB). Together, these 106 proposals involve FDI worth Rs 3,527.82 crore.

Of these, 48 proposals pertain to cash-and-carry wholesale trading activities accounting for 45.28 per cent of the total number of entrants. However, together, these 48 proposals account for FDI worth of Rs 134.32 crore which is a meagre 3.8 per cent of the total FDI approved during this period.

And these firms are getting into every possible area of the wholesale trade. They have established their presence in grains trading, all types of food items trading, aqua-feed, fertilisers, commodity derivatives and various non-food commodities.

These firms have also established their presence in trading in IT products, hearing aid instruments and other medical instruments, diamonds and other precious and semi-precious stones, gold, silver and jewelleries, cosmetics, surgical devices, fertilisers, furniture, home furnishing items as well as granite and ceramic tiles, automobile parts, footwear, apparels and sewing machines, specialty chemicals to name a few.

According to a consultant who assists foreign firms to set up shop in India, the paradox of large number of players and low level of investment exists because there is no minimum ceiling prescribed in the rules for entering the wholesale trading sector like it is in many other areas.

"This sector was never considered a sensitive area though it has tremendous potential of generating high turnovers. There are sectors like NBFC, insurance and a few others where there is a minimum capitalisation norm. But even with Rs 1 lakh a foreign firm can start wholesale trading in India. So naturally, there is a rush," he said.

Interestingly, the list of approvals reveals that a majority of these foreign companies belong to relatives of resident Indians.

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