Inida to open FDI in Multi – Brand Retail : Budget 2011

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Finance minister Pranab Mukherjee may signal the government’s intent to open up foreign direct investment (FDI) in multi-brand retail as one of its measures to contain commodity prices. A group of secretaries of the departments of industrial policy and promotion (DIPP), food and public distribution, food processing industries and the Planning Commission is working on specific schemes to encourage investment in supply chains and cold storages, which will be dovetailed with organised retail chains.

Pranab mukherjee

The aim is to ensure more efficient distribution of farm products and minimum wastage.

At present, FDI in multi-brand retail is prohibited, but the government allows 51% FDI in single brand retailing and 100% in wholesale trade.

The debate has gathered steam in recent weeks with many within the government espousing the view that FDI in multi-brand retail will help rein in food prices.

Last month cabinet secretary KM Chandrasekhar, the country’s topmost bureaucrat, suggested in a presentation to cabinet ministers that FDI in multi-brand retail should be allowed as a medium to long-term measure to improve distribution.

Foreign investment in retail has been a politically contentious issue. Domestic traders lobby groups and Left-wing political parties have expressed concern that transnational giants offering deep discount sales in mega stores would put at risk the livelihood of neighbourhood mom-and-pop stores and street vendors.

DIPP had floated a discussion paper in July making a strong pitch for opening the retail sector to foreign direct investment (FDI) that would allow global giants such as Wal-Mart, Tesco and Carrefour to set up mega stores in India.

The Planning Commission is also in favour of opening up the retail sector to FDI.

“FDI in multi-brand retail trading should be permitted, since it will have both positive direct and indirect effects that are of value to the national economy,” it has said.

The food and consumer affairs ministry has favoured opening up FDI in multi-brand retail with 49% cap.

“This (FDI in multi-brand retail) will help local enterprise to upgrade their technology and practices to face competition from MNCs,” the food ministry said in its comments on the discussion paper.

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