The Hindu Business Line : Survey pitches for FDI in multi-format retail

New Delhi, July 2 The Economic Survey has made a hard pitch for opening-up of FDI in a host of sectors, including the controversial multi-format retail.

The issue has been a subject matter of intense debate in the past and it was widely anticipated that UPA’s return to power would fast-track reforms, including liberalisation of FDI norms in retail, something that erstwhile Left allies had found unacceptable.

The Economic Survey tabled in Parliament today specifically talks about “FDI in multi-format retail, starting with food retail”.

“Initially, this could be subject to setting up a modern logistics system, perhaps, jointly with other organised retailers. A condition could also be put that it must have (for five years say) wholesale outlets where small, unorganised retailers can also purchase items (to facilitate transition),” it said.

Currently, India allows 51 per cent FDI in single brand retail. It permits 100 per cent FDI in wholesale cash & carry model, but has kept out FDI in multi-brand retail owing to political opposition and concerns over livelihoods of the neighbourhood mom and pop stores.

A recent Parliamentary Standing Committee report had not only opposed FDI in retail but also the entry of domestic heavyweights into the retail trade.

According to Mr Pinakiranjan Mishra, Partner and Industry Leader, Retail & Consumer Product Practice, Ernst & Young, “Since food and grocery makes up a large part of the wallet share of Indian consumer, the survey has rightly chosen food as an area for opening up of FDI.

“Investment required for back-end logistics and supply chain would also be highest in food compared to other areas, where the supply chain exists in some shape and form. Moreover, it has a positive impact on the maximum number of people namely farmers/producers as well as consumers.”

KPMG said the Government needs to strengthen the Agriculture Produce Marketing Committee (APMC) to facilitate FDI in food multi-brand retailing.

“APMC has not been rolled out in all the States. There are currently many intermediaries between the producers and the consumers in the food market and APMCs could prove valuable for international food retailers and Indian farmers,” said the KPMG Advisory Services Manager, Mr Anand Ramanathan.

The Survey’s commentary on easing of FDI norms ventures beyond the contentious retail sector. It has mooted a phased increase in FDI limits in banks, and hiking of foreign equity share in insurance sector to 49 per cent.

Interestingly, it has made a case for allowing 100 per cent foreign equity in a special category of insurance companies that provides all types of insurance (health, weather) to rural residents and for all agricultural-related activities including agro-processing.

“This may help dispel fears of foreign equity in insurance,” it said.

The Economic Survey has also suggested raising the FDI cap in defence industries to 49 per cent from the existing 26 per cent; and allowing up to 100 per cent FDI on a case-to-case basis in high technology, strategic defence goods, services and systems that can help eliminate import dependence.

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