Cabinet Approves 51% FDI In Multi-Brand Retailing

Pushing a major reform, the government on Thursday allowed 51 per cent foreign investment in the multi-brand retail, paving way for global chains like WalMart, Carrefour and Tesco to open mega stores in 53 major cities.

India will open the country's retail industry to foreign supermarkets, Food Minister K.V. Thomas told reporters on Thursday, a much delayed reform expected to help unclog supply bottlenecks and ease inflation over time.

The Cabinet also decided to raise the cap on foreign investment in single-brand retailing to 100 per cent from 51 per cent, Thomas added.
The decision will be cheered by global retail giants such as Wal-Mart that have long been eyeing India's lucrative retail sector worth an estimated $450 billion a year.

The decision, a game-changer for the estimated USD 590 billion (Rs 29.50 lakh crore) retail market, is taken at the meeting of the Cabinet presided over by Prime Minister Manmohan Singh.

Efforts to liberalise the sector, perceived as politically risky ahead of elections next year in India's largest state, Uttar Pradesh, have been hampered by the government's political opponents and sections of the ruling coalition itself. 

Earlier, efforts were on to convince West Bengal Chief Minister and Trinamool Congress chief Mamata Banerjee to support FDI in multi-brand retail which is coming up for consideration of the Union Cabinet on Thursday evening.

A senior government source refusing to be named had said the cabinet meeting could approve or delay the proposal to further open up India's retail sector to foreign direct investment (FDI), but it will not reject it. The government's plan to open its supermarket sector to global retailers hung in the balance as political opposition to the long-delayed reform mounted just hours before the cabinet meeting called to approve it.

The senior government source said the government believed it made "economic sense" to further open up retail. "It won't be rejected," the source said.

Meanwhile, Bharatiya Janata Party (BJP) Thursday asserted that it would use all mediums of democratic protest to oppose the move to allow Foreign Direct Investment (FDI) in multi-brand retail, saying this would harm self-employed retailers.

Multinationals such as Wal-Mart Stores Inc have eyed India for years as the last frontier in mass retailing -- a market estimated at $450 billion a year, but still dominated by traditional family-run and corner stores.

Allowing foreign retailers to take stakes of up to 51 per cent in supermarkets would attract much-needed capital from abroad and ultimately help unclog supply bottlenecks that have kept inflation stubbornly close to a double-digit clip.

One of the fears expressed was that foreign companies will start by selling cheap to attract people and then, within a year and half, increase prices. "This will hurt the poor and all the small traders. This has to be properly discussed more openly," another said.

Political Risk
Political opponents of the proposal, with an eye to the ballot box, argue an influx of foreign players -- which could include Carrefour and Tesco Plc -- will throw millions of small traders out of work in a sector that is the largest source of employment in India after agriculture.

"While there has been a lot of consensus, in my view, in the government, there's been less of a consensus in the political class," Montek Singh Ahluwalia, deputy head of the Planning Commission, told CNN-IBN TV this week.

"And, therefore, it's not surprising they have a few more consultations and take a little more time."

Opening up the retail sector would be one of the boldest moves to come from Singh's government, which has been tripped up by a string of corruption scandals over the past year and mired in a policy paralysis at a time of slowing economic growth.

India currently allows 51 percent foreign investment in single-brand retailers and 100 percent for wholesale operations, a policy that the world's top retailer Wal-Mart and Carrefour, among others, have long lobbied to free up further.

A group of senior civil servants approved the proposal to open the multi-brand sector to foreign players in July, although it recommended strict local sourcing requirements and minimum investment levels.

Even if there are stringent caveats on foreign investors, the government would still be taking a big political risk ahead of elections in the most-populous state, Uttar Pradesh, next year.

India's biggest listed company, Reliance Industries, was forced to backtrack on plans in 2007 to open Western-style supermarkets in Uttar Pradesh after huge protests from small traders and political parties.

The Bharatiya Janata Party has vowed to oppose opening the sector, and domestic traders have taken to the streets this week amid talk the reform could be imminent.

Praveen Khandelwal, Secretary General of the Confederation of All India Traders (CAIT), which staged protests against the policy this week, said foreign supermarkets would hurt his members.

"Definitely, there will be large scale unemployment," he said.

BJP Opposed To FDI In Multi-Brand RetailLeader of Opposition in Rajya Sabha (Upper House of Indian Parliament) Arun Jaitley said a Cabinet note has been circulated on allowing FDI in multi-brand retail- where "everything conceivable under the sun is available".

"BJP is completely opposed to FDI in retail sector. Our economy is dominated by the services sector which accounts for 58 per cent of India's GDP. The retail chains in India, both small and big, account for a major segment of this sector. FDI with deep pockets entering this segment will have an adverse impact on our growing domestic retail sector," he said.

The party maintains that self-employment in India is the single largest source of jobs with an overwhelming section of the population being self-employed.

United Progressive Alliance (UPA)-I had already allowed 51 per cent FDI in single brand retail which aims at the well-off.

BJP favours a fragmented market so that the consumers have a wide choice and feels consolidated markets make the consumer captive.

"No one player should be allowed to dominate the market. Allowing foreign players, with deep pockets, enables such a consolidatoin. It will sweep aside competition and involve a loss of jobs, both in the manufacturing and services sector," Jaitley said.

He insisted that BJP will use all mediums of democratic protest inside and outside Parliament to oppose FDI in multi-brand retail.

(Agencies)