51% FDI in multi-brand retail moves step closer to reality

Our Bureau New Delhi | Updated on August 10, 2011 Published on July 22, 2011



Decision of Committee of Secretaries has to be approved by Cabinet

After a delay of several years, the move for 51 per cent foreign direct investment (FDI) in multi-brand retail took a significant step forward today. A Committee of Secretaries (Cos), headed by the Cabinet Secretary, Mr Ajit Kumar Seth, that met on Friday gave the go-ahead for this politically-sensitive decision, which will now have to be approved by the Union Cabinet.

The nod at the CoS level comes, significantly, just a week after the US Secretary of State, Ms Hillary Clinton's visit to India. The US has, for long, been urging India to open up its retail trade to allow companies such as Walmart, Carrefour and Tesco to sell grocery, food and other merchandise directly to consumers.

Currently, these companies are only permitted to operate cash-and-carry format stores catering to wholesalers and business consumers.

Conditional clearance

The clearance given by the CoS, following a two-hour-long meeting here, is conditional: Foreign retailers will have to dedicate at least 50 per cent of their proposed investment to back-end supply-chain infrastructure. They would further have to commit a minimum FDI of $100 million.

The CoS, however, rejected the proposal requiring the foreign retailers to sell at least 30 per cent of their total turnover to local retailers, either as wholesale or in the cash-and-carry model.

The CoS did not take any stand on the issue of forcing the foreign retailers to source at least 30 per cent of their merchandise from domestic small and medium units. Such a move, it held, would have to be examined in the light of whether or not it is compliant with WTO norms.

The opening up of retail has had strong backing from the Prime Minister, Dr Manmohan Singh, the Finance Minister, Mr Pranab Mukherjee, and the Planning Commission Deputy Chairman, Mr Montek Singh Aluwalia, among others, who said that it will help contain high food inflation.

In May, an Inter-Ministerial Group (IMG) on inflation, headed by the Chief Economic Advisor in the Finance Ministry, Dr 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.

Total retail sector

According to an ICRIER report, India's total retail sector is estimated at $590 billion, with the unorganised sector accounting for $496 billion.

It may be recalled that in 2009, the Parliamentary Standing Committee on Commerce had submitted a report against FDI in retail. It had recommended a blanket ban on domestic corporate heavyweights and foreign retailers from entering the retail trade in grocery, fruits and vegetables, and had restrictions imposed on their opening large malls for selling other consumer products.

The Department of Industrial Policy and Promotion (DIPP), the nodal agency for framing FDI policy, had put out a discussion paper on opening of the sector, which has been in the public domain since July 2010.

Published on July 22, 2011
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