june  2011
volume 3  issue 3
FDI in Multi-Brand Retail Trading-
It’s a Wait and Watch !
The Indian Government is currently contemplating allowing Foreign Direct Investment of up to 51% in Retail sector. Probably prompted by increased inflation in food prices, the proposal to throw open India's the $450 billion retail market to foreign investors is however likely to be debated for a while in parliament, as such leaving a lot to speculation.

The department of industrial policy and promotion (DIPP), recently proposed to open up FDI in multi-brand retail trading (MBRT) up to 51 % albeit with certain conditions. The most significant of these riders being- a mandatory 50% investment in back-end infrastructure; including cold storage chain and warehousing.

The government has also suggested an amount of $100 million as minimum FDI in an MBRT project. So also such outlets would be permitted only in cities with populations of more than 10 lakh (2011 census), within a radius of 10 km around the municipal/urban agglomeration limits of such cities. Moreover the final decision as to whether or not to allow such front-end retail outlets to operate in a particular location would be left to the discretion of the state government.

In an attempt to ensure that smaller retail outlets are integrated into the value chain, the government has suggested a minimum of 30% of the sales turnover to be made to small retailers, either directly or through wholesale cash-and-carry units set up for this purpose. So also a minimum of 30 % of the value of manufactured items sourced (excluding food products) would have to be procured from the small and medium enterprises (SME). State governments will also have the liberty to set further guidelines to ensure that local grocery units or kirana merchants as they are know are not adversely affected by this move.

As of now however, there is no consensus between various government departments and ministries on opening up FDI in MBRT. While the ministry of Agriculture, Food Processing Industry and Planning Commission have supported 100 per cent FDI in MBRT, the department of consumer affairs (DCA) supports FDI participation in MBRT up to 49 per cent only. The department of pharmaceuticals has said that FDI in MBRT be included for the study on regulatory environment. The department of economic affairs is yet to give an opinion on the matter. While inter-ministerial consultations are still underway, the opposition has made their disapproval clear, stating their concerns over the future of the local mom and pop stores that are likely to lose business, irrespective of the many riders.

The Government however is of the opinion that FDI in MBRT will only benefit small producers, given the benefits of more efficient distribution and warehousing. The government is also hoping that these would take care of growing food prices in the long run.

Several International retail giants like Wal-Mart, Carrefour and Tesco, who already have a presence in India in one form or the other, have long been awaiting the government’s approval for FDI in MBRT. How and when this closing chapter in India’s FDI policy will actually come to pass is still a matter of wait and watch.

 

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