MSME ministry moots up to 18% FDI in multi-brand retail

The MSME ministry has proposed allowing only up to 18 per cent FDI in multi-brand retail, while cautioning that entry of global retailers could harm interests of kirana stores, small farmers and consumers.

In its reply to the comments sought by the Department of Industrial  Policy and Promotion (DIPP), the Micro, Small and Medium Enterprises (MSME) ministry has said even if FDI in multi-brand retail has to be allowed, it should be less than 18 per cent, official sources said.

"India should tread cautiously by opening the sector, if at all, gradual and analysing the impact before opening it more. In the beginning FDI less than 18 per cent may be thought of," the ministry's reply to comments sought by DIPP said.

In July DIPP had sought comments from various stakeholders on opening of FDI in multi-brand retail. Currently FDI in multi-brand retail is prohibited in India, while in 51 per cent is allowed in mono-brand retail and 100 per cent in cash and carry.

"It may harm the interest of small farmers as well as consumers, who would be at the mercy these global retailers, who will be able to influence prices," it said.

MSME's reply further said: "Once multi-brand retail FDI is allowed, close competition of kirana stores among each other will go. The multi-brand retailer will take over the market as per its will because there cannot be as many retail outlets in each locality as the present kirana stores."

"Thus in practical terms competition will go and monopoly will be established."

The ministry suggested that even if FDI is allowed, conditions should be put that "50 per cent of the investment should be in fixed capital, including facilities for supply chain infrastructure, processing and storage."

It also said that malls housing multi-brand retail stores should be "at least two kilometers outside the precincts of the town or city area" to minimise competition to small retailers.

FDI-backed multi-brand retailers should be allowed to open stores initially only in six metros -- Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad, it added.

"If allowed in cities or town having lesser population, the impact of these multi-brand retail stores will be felt faster and deeper because of lesser number of local retail stores," it said.

Justifying its views to calibrate the opening of FDI in multi-brand retail, the MSME ministry said India should learn from other global markets where few super market players have established monopoly.

"In 2007, five major chains accounted for more than 50 per cent of the retail sales in most of the European Union countries, even as much as 70-80 per cent of the retail market in Denmark and Finland," it said.

Even in Thailand expansion of organised retail caused dislocation to traditional supply chains during 1997-98 Asian Financial Crisis, it added.

To protect interest of the small and medium enterprises, the ministry said in case FDI is allowed, it should be made mandatory for retailers to source 40 per cent of the manufactured products should be sourced from MSMEs.

The MSMSE ministry also proposed setting up of 'Retailers Regulatory Authority' and enact 'Regulation and Conduct for Retailers' (Act) to check exploitation of local kirana stores and unfair practices by multi-brand retailers.

In order to keep uniformity across the country, the ministry also proposed creation of a central agency -- Retail Trade enforcement Organisation.