DIPP mulls 100% FDI in multi-brand retail

In a bid to enhance competition in the country’s retail segment, the Commerce and Industry Ministry is likely to propose 100% Foreign Direct Investment (FDI) in multi-brand retail. However, it is likely to suggest stiff local sourcing requirements and mandatory investments in backward linkages. The proposal, if implemented, will open the door to the likes of Wal-Mart and Tesco to start their operation in India.

“We are preparing the paper that will be placed for public debate in some time,” a senior official of the Department of Industrial Policy and Promotion (DIPP), the nodal body for foreign investment policy said. It is interesting to note that the DIPP had earlier batted for FDI limit of 51% in the single-brand retail. However, a final decision on the proposed cap will be taken after due deliberations with the consumer affairs ministry.

At the same time, DIPP is mulling to provide the required safety net for the small shopkeepers whose business could be endangered by the entry of new big multi-brand retailers. DIPP has also made its intentions clear by asserting that the idea of big multi-brand retail outlets should enable growth of small retailers and not threaten their existence. The paper is also expected to make it mandatory for big multi-brand foreign retailers to create a back-end cash-and-carry for small shopkeepers, giving them benefit of scale on the sourcing side. DIPP’s proposal for mandatory domestic procurement will ensure improved returns for farmers while strong back-end linkages will contribute to the development of food processing and cold chains in the country. In a bid to prevent any danger to small shopkeepers, particularly in small cities, DIPP is mulling to allow MNC retailers to set up stores only in cities with population upwards of one million.

During the announcement of annual budget for FY11, Finance Minister Pranab Mukherjee had said “… The second element of the strategy relates to reduction of significant wastages in storage as well as in the operations of the existing food supply chains in the country. This needs to be addressed.” Several industry estimates have cited the lack of cold chains in the country as a reason for wastage of about 40% of the farm produce, loss of around Rs 50,000 crore annually. Moreover, the Prime Minister Manmohan Singh had recently thrusted upon the need for greater competition in the retail sector and therefore the necessity of opening up of the sector.