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Posted on 23 November 2011 |
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| CURRENT AFFAIRS |
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LIBERALISATION |
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Govt likely to allow 51% FDI in multi-brand retail sector
Domestic retailers fear foreign players will wipe out neighbourhood shops serving millions of middle-class consumers
Iftikhar Gilani
New Delhi
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Throwing open the retail trade to foreign biggies like Wal-Mart is a major economic reform of Prime Minister Manmohan Singh's government |
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The Union cabinet is likely to allow 51% foreign direct investment (FDI) in multi-brand retail sector on Thursday. A 124-page note circulated among ministers stresses that the proposal for FDI in multi-brand retail trading in a calibrated manner will not have any financial implications on the exchequer and every such project should obtain the government's clearance.
The decision will allow the foreign companies to set shops in India for multi-brand retail trading in all products, including agricultural, with investment up to 51 per cent and further liberalise single-brand retail by raising the FDI ceiling to 100 per cent.
The first major liberalisation move of the UPA-II government is being vehemently opposed by the main opposition Bharatiya Janata Party and the Left since its contours were leaked over a week ago. The move is also likely to meet strong resistance from Trinamool Congress and DMK as Railways Minister Dinesh Trivedi and Fertiliser Minister MK Alagiri are planning a joint strategy.
Any foreign investor will have to bring in a minimum amount of around $100 million and at least 50 per cent of the total FDI should be invested in the ‘back-end’ infrastructure, which includes processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage and warehouse. The note makes it clear that expenditure on land cost and rentals will not be counted as back-end infrastructure.
The note also makes procurement of at least 30 per cent manufactured and processed product sources from small-scale industries to promote small-time entrepreneurs mandatory. The new policy also specifies that such multi-brand retail shops shall be set up only in cities with a population of more than 10 lakh as per the 2011 census and up to 10 km around the municipal, urban cluster limits of these cities with provision of transport connectivity and adequate parking.
To ensure that these foreign firms do not buy all agriculture products and sell them at very high price causing scarcity, the policy lays down that "the government will have the first right to procure agriculture products". It also clearly states that fresh farm products—fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products— shall be sold unbranded.
Those in the industry and trade federation say that multi-brand retail will bring in massive FDI and generate huge employment since single-brand retail trading has not been successful and may still not become profitable even after the government raises the FDI cap from 51 to 100 per cent.
According to the Cabinet note, the government's approval will also be required for FDI in single-brand retail. Besides, single-brand products should be sold under the same brand in which they are sold internationally in one or more countries.
Throwing open the retail trade to foreign biggies like Wal-Mart is a major economic reform of Prime Minister Manmohan Singh's government, and seen as a policy aimed at attracting foreign capital, unclogging supply bottlenecks and helping tackle high inflation.
The move will, however, be met with protects by the Opposition, and many domestic retailers who claim that influx of foreign players will drive down prices and cause huge unemployment as they will wipe out neighbourhood shops serving millions of middle-class consumers.
However, officials who prepared the plan for opening up the multi-brand retail sector in July assert that the fear of job loss is unfounded as big super stores will not be able to compete with the neighbourhood shops in delivering small items at the common man’s doorsteps. Moreover, the local resourcing of 30 per cent items will lead to high demand for employment, they say.
India currently allows 51 per cent FDI in single-brand retail trade and 100 per cent for wholesale operations—world's top retailer Wal-Mart and French hypermarket chain Carrefour are lobbying for further relaxation in the policy. Wal-Mart was the first foreign firm to set its wholesale shop in Amritsar. Officials say that the foreign retailers coming with huge holding capacity and refrigeration facilities will save 40 per cent of India's fruit and vegetable products that are wasted because of lack of poor transport networks and cold storage facilities.
Iftikhar Gilani is a Special Correspondent with Tehelka.com.
iftikhar@tehelka.com
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