The government is likely to announce in the Budget a timeline for allowing 51 per cent foreign direct investment (FDI) in multi-brand retail.
To show the government’s commitment to reforms, Finance Minister Pranab Mukherjee may make an announcement as a major reform process on March 16 and give the proposal a fresh lease of life to build investors’ confidence.
Officials said though the move was held back due to political differences with some allies and the opposition, industry department was meeting with various sections of the society, including farm organisations, to build an opinion in favour of bringing in FDI.
As the issue was suspended, the government had been building consensus on the matter within its own political alliances. It has also been learnt that the government had been successful in conveying the idea that allowing FDI in multi-brand retail sector will be purely based on the decision of state governments, which means states opposed to the move would not allow foreign retailers to set up shop.
| STEP-BY-STEP MOVE |
| * April 2006 |
| 51% foreign direct investment (FDI) allowed in single-brand retail and 100% in wholesale cash and carry |
| * July 2010 |
| Department of Industrial Policy and Promotion invites opinion on FDI in multi-brand retail |
| * July 2011 |
| After prolonged discussions, Committee of Secretaries (CoS) recommends 51% FDI in multi-brand retail with riders |
| * November 2011 |
| Cabinet clears 51% FDI in multi-brand retail and hiking it to 100% in single brand |
| * December 2011 |
| Government puts on hold FDI in multi-brand retail succumbing to opposition pressure. 100% FDI in single brand retail on |
| * January 2012 |
| Government notifies 100% FDI in single-brand retail |
“This particular issue was never put on the back burner,” a senior official said on condition of anonymity. “The decision to hold it back was always temporary and sooner or later this (FDI) would become a reality. We cannot afford to keep our doors shut at a time when we need foreign investment the most. This has been widely discussed and the finance minister is going to reassert this matter once again in his Budget speech.”
Last week, the finance minister asked the states to encourage organised sector in supply management to effectively deal with food inflation, hinting that opening the sector to foreign retailers will strengthen back-end supply chain for food retailers.
According to Commerce and Industry Minister Anand Sharma, it is only a “matter of time” before the government gave its nod by notifying the Cabinet decision to allow FDI in multi-brand retail which was taken on November 24. He also said the decision to hold the proposal back was “just a pause.”
Foreign retailers have long wanted to participate in India’s $450-billion retail market. But small and medium-size retailers, comprising 90 per cent of the sector, are opposing it. This has made implementation difficult.
“The policy reversal is credit negative,” a note by Atsi Sheth, vice president-senior analyst, Sovereign Risk Group, Moody’s Investors Service Inc. “It deflates the ephemeral boost to business confidence that took hold after the measure’s initial announcement, curtails planned foreign investment in the retail sector, and reinforces the popular view that Indian politics hamper the government’s ability to implement policies decisively.”
Entry of large retail chains in India is expected to benefit consumers by helping address inflation concerns through price reductions facilitated by the extent of cut in trading margins effected to by the retail giants such as Walmart and cut agri-waste. Improvement of supply chain, distribution efficiencies, coupled with capacity building and induction of modern technology will arrest wastages. Farmers will be able to directly sell their produce to retailers, thereby reducing margins for middlemen. Investments in cold-storage and warehousing will ease supply-side pressures that have driven inflation close to double-digit, according to an analysis by ICRA.
The move drew protests from the Confederation of All India Traders, which accused the government of not holding proper consultations with traders and hawkers and only meeting a few select groups.
Ironically, the executive decision on multi-brand retail will come up when Parliament session is on, even as the continued adjournment of sessions had led to its deferment. Prime Minister Manmohan Singh had said the issue of implementing the Cabinet decision will be taken up with Opposition once Assembly polls are over.
The government has already notified hiking FDI in single-brand retail to 100 per cent from 51 per cent.
