India opens doors to global retail chains

New Delhi : In a major push to reforms, India Thursday allowed global chains like Wal-Mart, Carrefour and 7-Eleven to bring up to 51 percent foreign equity to open multi-brand retail stores despite opposition by some allies in the ruling coalition. Also allowed is 100-percent equity in single brand retailing.

The much-awaited decision on allowing foreign capital into multi-brand retailing and enhancing the cap on single-brand stores was approved during a two-hour meeting of the federal cabinet Thursday evening, presided over by Prime Minister Manmohan Singh.

“We will make a statement in parliament,” is all that Commerce Minister Anand Sharma said after the meeting given the sensitivities involved. But some ministers and officials confirmed the clearance on condition of anonymity.

Sources said there are also some caveats proposed in the policy, notably to protect the interests of mom-and-pop shops, farmers and small and medium enterprises. There are some 40 million people involved directly in running these neighbourhood stores.

The decision came despite protests by some allies, notably the Trinamool Congress. Even some cabinet ministers belonging to Congress party, which heads United Progressive Alliance (UPA) coalition, had expressed their reservations over its impact on small retailers.

“This would open up enormous opportunities in India for expansion of organised retail and allow substantial investment in backend infrastructure like cold chains, warehousing, logistics and expansion of contract farming,” said CII president B. Muthuraman.

The Department of Industrial Policy and Promotion in its cabinet note had pushed for the move saying global retailers will bring new technology, help establish supply chains to cut wastage of farm produce and induce competition in the sector.

India had allowed 100-percent foreign equity for wholesale cash-and-carry chains under government approval route in January 1997 when H.D. Deve Gowda was prime minister. For nearly 10 years thereafter there was little movement forward.

Then in February 2006, the doors were opened for up to 51 percent foreign equity in the single-brand retailing segment, even as nod for processing applications to open wholesale cash-and-carry chains was put under the automatic route.

Since then, there was a strong debate on taking a similar decision on multi-brand retailing. Two months ago, a committee of secretaries had given a green signal on its part after going thorough the comments — for and against — from all stakeholders.

The caveat proposed by the committee included a minimum investment of $100 million, stores restricted to metros and Tier-I cities, and some minimum sourcing requirement from small and medium enterprises.

Globally, foreign equity in retail is permitted in Brazil, Argentina, Singapore, Indonesia, China and Thailand without any limits, while Malaysia imposes equity caps on overseas investment.

Thursday noon had seen the Trinamool Congress, led by West Bengal Chief Minister Mamata Banerjee, express reservations against the move. The party had asked its sole nominee in the federal cabinet, Railway Minister Dinesh Trivedi, to oppose the move.

“I have some reservations, we can express our views, we will express our views when the details come to us,” Banerjee said, even as Commerce Minister Anand Sharma was dispatched to convince her regarding government’s intension.

While Left parties have all along opposed foreign equity in retail trade, the Bharatiya Janata Party (BJP) also joined the chorus of opposition, saying the move will dent the domestic retail sector and also deal a blow to smaller manufacturing units.

“Fragmented markets always result in competition which is good for the consumer,” said Arun Jaitley, leader of opposition in Rajya Sabha, referring to the current play in the domestic segment.

“We oppose foreign direct investment in multi-brand retail. We are not against foreign equity, but it has to be addressed sector wise.”

The Left parties opposed the move. “It will lead to the displacement of crores of small retailers in the market. Foreign direct investment will increase the price rise in retail goods,” said Communist Party of India leader Gurudas Dasgupta.

The government feels the move will have the following benefits:

* It will cut intermediaries between farmers and the retailers, thereby helping them get more money for their produce

* It will help in bringing down prices at retail level and calm inflation

* Big retail chains will invest in supply chains which will reduce wastage, estimated at 40 percent in the case of fruits and vegetables

* Small and medium enterprises will have a bigger market, along with better technology and branding

* It will bring much-needed foreign investment into the country, along with technology and global best-practices

* It will actually create employment than displace people engaged in small stores

* It will induce better competition in the market, thus benefiting both producers and consumers.

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