The government is believed to be giving final touches to the proposal for allowing foreign direct investment (FDI) in multibrand retail, in a decision to go ahead with its reform agenda. However, in order to not incite large-scale protest and opposition, it has decided to open the sector in a “calibrated manner”.
The final report, being prepared by the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry, has got the much-needed approval from all other ministries concerned. However, DIPP is still fine-tuning the proposal, to avoid public ire.
According to senior officials, the UPA government would now pursue its reform agenda more aggressively, since its alliance gained considerable foothold in the state elections. Opening multibrand retail to FDI is one such item.
“It will not be done all of a sudden but in a calibrated manner. We have zeroed on some preconditions that would be made mandatory for the foreign retailers to follow. Some of them are already operating in the country (in single brand and wholesale cash and carry) for some years now and they have no issues with the conditions,” a top government official, who refused to be identified, told Business Standard.
The official also said the government is soon going to convene a high-powered meeting on the issue with all the stakeholders. After the meeting, the proposal would be forwarded to the Cabinet.
WITH RIDERS
The government is likely to put a condition to the foreign retailers, of investing a minimum of $100 million, of which $50 mn would be kept aside for supporting back-end infrastructure such as warehouse, cold-storage and transportation, among others, depending on the state governments' decision. Retailers would not be allowed to set up shops in cities with a population of less than a million.
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Under the present norms, the government currently allows 51 per cent FDI in single-brand retail and 100 per cent in wholesale cash-and-carry operations. It is prohibited in multibrand. Last year, the government also removed the condition that wholesale trading made to group companies must be utilised for internal use. However, the government has not removed the clause that such sale of goods internally should not exceed 25 per cent of the total turnover of the wholesale venture.
In July last year, the government had floated a discussion paper to open the multibrand retail sector for FDI. After this, a committee was formed under the ministry of consumer affairs and public distribution, having representatives from the ministries of commerce and industry, finance, agriculture and food processing industries as its members.
The ministry of consumer affairs and public distribution has suggested a threshold of 49 per cent for FDI. The micro, small and medium enterprises ministry has said the government should limit FDI in multi-brand retail to 18 per cent.
While there had been severe criticism against opening the sector for FDI, domestic players like the Future Group, Bharti Enterprise, Reliance Retail and Mahindra Retail have set up shops in organised retail across the country with little or no protest at all.
According to the critics, opening the sector for FDI would kill small-scale retailers due to severe competition, rendering them unemployed. This would also impact farmers, due to increased control of corporate conglomerates on the sector.
Global multibrand retail chains have been pushing India to open the sector for FDI in order to tap the billion-plus consumer market. International retail juggernauts such as Wal-Mart, Carrefour and METRO have opened cash-and-carry stores in order to tap the market.