Ball set rolling for retail FDI

Diamond mining cap may be raised to 100%.

Making a case for allowing foreign direct investment (FDI) in the retail trade, the government has dismissed apprehensions that it will displace Indian players.

In a note circulated among ministries, the Foreign Investment Promotion Board has (FIPB) pointed out that the entry of international brands like McDonald's, Pizza Hut and KFC has not crowded out local players like Bikanerwala, Haldiram and Dasaprakash.

"The latter have, in fact, emerged stronger by adopting modern technology and management practices and by expanding their networks," the note says, adding: "The same could apply to the Indian-managed retail trade segment if FDI is allowed in the sector."

The note also says that FDI in the retail trade will not lead to a large-scale exit of small family-owned outlets. It points out that the threat, if any, to small retailers from an international chain is the same as from a domestic retailer.

The FIPB note comes at a time when the industry ministry is undertaking a comprehensive review of the FDI policy across sectors to identify where norms can be further eased. The last such review was undertaken in 2000.

The exercise encompasses sectors like mining and retail, which have been identified as possible areas to liberalise FDI.

"We are considering enhancing the FDI limit for exploration and mining of diamonds and precious stones from 74 per cent under the automatic route to 100 per cent," an official told Business Standard.

The review will also cover minor modifications and procedural simplifications. "The intention is to incorporate all minor changes rather than issuing separate clarifications from time to time," the official said.

The government is hopeful of garnering around $7 billion FDI during 2004-05. The National Common Minimum Programme has set a more ambitious goal, stating that India can easily absorb at least two to three times the present FDI inflow.

The FIPB note argues that consumers will be the ultimate beneficiaries of allowing FDI in the retail trade as it will lead to lower prices and better quality of products and services.

Allowing FDI in retailing will also help integrate Indian manufacturing with the global supply chain and lead to higher sourcing from India by global retail majors.

Opening floodgates

LOCAL FEARS FIPB allays fears of local players; says they emerge stronger by adopting modern technology and management practices when faced with foreign competition

MORE FUNDS Govt considering enhancing the FDI limit for exploration and mining of diamonds and precious stones from 74% under the automatic route to 100%

FDI DREAMS The government is hopeful of garnering around $7 billion during 2004-05. The common minimum programme says India can easily absorb at least two to three times the present FDI inflow