Favours safeguards to ensure long-term equity, handle dislocation
The food and consumer affairs ministry feels suggestions from states are needed for any decision on allowing foreign direct investment (FDI) in multi-brand retail.
While the ministry has set up a committee to analyse feedback on the draft note in this regard from the Department of Industrial Policy and Promotion (DIPP) of the commerce ministry, it has also started collating the views of states.
DIPP was in favour of moving forward on the idea. In a recently-held meeting of state food secretaries, the food ministry distributed the terms of reference for getting their views on the DIPP draft.
“This became imperative after the parliamentary committee intervened and gave its view. According to the concerns raised by the parliamentary committee, the matter is not whether or not to allow FDI in multi-brand retail but to prepare a Constitutional framework in which all stakeholders are consulted before the decision is taken,” said an official.
Heeding MPs’ concerns
The 90th report of Parliament’s standing committee on commerce raised concerns on unemployment due to slide-down of local retailers and sidelining of consumers’ welfare due to predatory pricing by retail giants and recommended a ban on large domestic corporate houses and foreign retailers from entering retail trade in groceries, food and vegetables. It wanted a policy to re-employ dislocated people and preparation of a legal and regulatory framework and an enforcement mechanism to prevent unfair means of competition, besides setting up a Retail Regulatory Authority to act as a whistle-blower.
“If the decision is whether or not to allow FDI, it’s a mandate of the commerce ministry. But if the issues raised by DIPP itself relate to compliance, penalty, conditionalities for multi-brand retail in the rural sector, allowing FDI for such stores only in cities, protection of small retailers under the Shopping Mall Regulation Act, etc, are to be handled, states’ participation is mandatory. Internal retail trade in any commodity is a state subject and the Centre cannot on its own deal with the issue. Ultimately, it is the state which has to ensure compliance and monitoring,” said a highly placed official in the ministry.
“A legal framework and regulation needs to be worked out to ensure compliance. At present, there is no umbrella central law for multi-brand retail. Every state has its own way of governing. If compliance and penalties are to be decided, it should be with reference to some law and there is none now,” said the source.
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Among the views received till date, while Left-ruled states such as West Bengal and Kerala have rejected the proposal for opening multi-brand retail to FDI, Punjab and Karnataka have favoured the idea, albeit with conditions.
The ministry is also proposing that 75 per cent FDI be in back-end infrastructure logistics, logistics and agro processing. It has also recommended that FDI increase the capital of the venture and not only subscribe to the existing capital to the extent of the FDI allowed. Besides, the money should not be used only for working capital but also for capital requirements.
“Even if till date we have looked into the issue of lock-in period in this FDI, these clauses will work as sufficient norms to ensure the investment is long term,” sources explained.