Centre opens up debate on FDI in retailing

by Sandeep Joshi


While there had been political resistance to the idea on the presumption that global players would swallow kirana stores, the industry has been pitching for allowing FDI in retail sector.

The Centre on Tuesday sought suggestions from various stakeholders on opening up foreign direct investment (FDI) in multi-brand retail trading, an issue that could generate a lot of heat in political and business circles in the country.

“Keeping in view the large requirement of funds for back-end infrastructure, there is a case for opening up of the retail sector to foreign investment. At the same time, in the Indian context, there is a view that this may be more appropriately done in a calibrated manner. We must ensure that the FDI does make a real contribution to address the inadequacies of back-end infrastructure. Alongside, we need to address the challenge of integrating the small retailer in the value chain,” Department of Industrial Policy and Promotion said in its discussion paper, seeking suggestions and views by July 31.

Giving rationale for FDI in retail trading, the discussion paper said the agriculture sector needs well-functioning markets to drive growth, employment and economic prosperity in rural areas. To provide dynamism and efficiency in the marketing system, large investments are required for the development of post-harvest and cold-chain infrastructure nearer to the farmers' field. Allowing FDI in front-end retail operations will enable organised retailers to generate sufficient cash to fund this investment. As per the Planning Commission, infrastructure for the farm sector such as cold chain would need an investment of Rs.64,312 crore.

“Similarly, there is a need to address issues relating to farmers, through removal of structural inefficiencies. This could be achieved through liberalised markets, with direct marketing and contract farming programmes, from which farmers could profit, as also more predictable farm-gate prices, steadier incomes and better access to evolving consumer preferences through private investors, especially the organised retail sector…FDI in retail may be an efficient means of addressing the concerns of farmers and consumers,” it said.

Besides, the paper also sought to make a strong case in favour of small retailers in the unorganised sector, saying their growth was constant at around 15 per cent annually compared to dip in profits recorded by the organised retailers. Opening FDI in retail could also assist in bringing in technical know-how to set up efficient supply chains which can act as models of development. It would also help bring about improvements in farmer income and agricultural growth and assist in lowering consumer prices and inflation, it added.

While FDI in multi-brand retailing is prohibited in India, foreign investment in single brand retail — since being opened in April 2006 — is about Rs.900 crore. The discussion paper also pointed out that India was losing agri-products, fruits and vegetables to the tune of Rs.1-lakh crore annually.