FDI in retail will not harm small players

The prospects of foreign direct investment (FDI) in retailing received another shot in the arm as the mid-term review (MTA) of the Tenth Five-Year Plan made a strong case for allowing foreign participation in the sector.

In its review, the Planning Commission cast aside apprehensions of an adverse impact on small retailers and traders. "The fears are grossly exaggerated, especially since modern retailing (by domestic players) has begun in any case," it said.

The MTA has said the entry of foreign players through joint ventures will help develop backward linkages to sources of supply, and help develop a domestic supply chain capable of meeting international quality standards.

Retailing is the last non-strategic sector where the government is yet to allow foreign participation. According to industry sources, the MTA is bound to influence the government's policies in the short-term.

"This review assumes greater significance as Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, is an influential policymaker," said a senior official of a large retailing firm.

The size of organised retail trade in India is estimated at Rs 16,000 crore, and is expected to grow to Rs 52,000 crore by 2010. At present, FDI is allowed only in wholesale business-to-business trading, and cash-and-carry operations. With the growth in markets like the US and Europe slowing down, the untapped Indian market is regarded as extremely important by global retailers like Walmart.

In the past few months, several leading professional services firms such as PricewaterhouseCoopers (PwC) and AT Kearney has ranked India among the most attractive destinations for investment in retailing, despite regulatory roadblocks.

These firms had advised their clients""including several large Fortune 500 retailers"" to quickly start planning their investments in India as the lifting of the ban on FDI looked imminent.

The MTA cites the example of China which has benefited immensely by opening up its retail sector to foreign participation. "It is necessary to review our policy in this respect as part of a general strategy of promoting labour-intensive manufacturing by the same retailers," it said.

Globally, retail trade is one of the largest employers. The Planning Commission has also argued that allowing FDI in joint ventures was likely to provide domestic suppliers access to international retailers.