Govt Moves A Step Closer To 51% FDI In Multi-Brand Retail.

The government today moved a step closer to allowing up to 51 per cent foreign direct investment (FDI) in multi-brand retail with a committee of secretaries (CoS) “unanimously” agreeing to allow global retail chains a majority shareholding in their Indian operations. The CoS, however, felt there was a need to specify certain conditions before these chains can set shop in the country.

According to senior government officials, the CoS, chaired by Cabinet Secretary Ajit Kumar, suggested that the FDI be allowed in large retail chains on the condition that they invest at least $100 million, of which 50 per cent should be in back-end supply chain. To start with, these chains may be allowed to open outlets only in metros.

The officials said today’s was most likely the last meeting of the CoS on the issue. “The proposal will now be placed before the Cabinet,” an official told The Indian Express.

While the Department of Industrial Policy and Promotion (DIPP) had recommended that foreign investors be allowed up to 51 per cent, the Consumer Affairs Ministry had suggested a 49 per cent cap.

Earlier, DIPP officials had maintained that retail chains interested in investing in India would have to promote local employment and support the domestic industry, as well as source at least 50 per cent of the products from small and medium enterprises.

Several MNCs, such as Wal-Mart, Carrefour and Tesco, have been eagerly awaiting FDI in multi-brand retail, given the very low penetration of organised retail in the country. According to an ICRIER report, India’s retail sector is estimated at about $590 billion, but dominated by kirana stores. In a statement issued late evening, Bharti Wal-Mart, however, preferred to be cautious and said it would await a formal government notification.

The proposal to allow FDI in multi-brand retail has been hanging fire for almost five years. The government first allowed 100 per cent FDI in the cash and carry format, which saw Germany’s Metro AG setting up shop in India, followed by Carrefour. Subsequently, the government permitted 51 per cent FDI in single-brand retail in 2006.

Concerned over rising inflation, an Inter-Ministerial Group chaired by Chief Economic Advisor Kaushik Basu too had pitched for opening up multi-brand retail. Basu had written to Prime Minister Manmohan Singh endorsing opening up of the sector.

The BJP has, however, been opposing the move on fears that it would adversely impact small traders and kirana stores. To allay their concerns, Commerce and Industry Minister Anand Sharma is likely to reach out to leaders of the opposition soon.

Source : financialexpress.com