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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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