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Centre may allow 100% FDI in retail on case-to-case basis : The Financial Express
The lid on the sectoral equity caps for foreign direct investment (FDI) in the retail trade is likely to be lifted very soon. A meeting of the group of ministers (GoM), constituted to review the FDI policies and decide the necessary changes, is being scheduled immediately after the minister for commerce and industry, Murasoli Maran, is back from the WTO meet in Doha, sources said.
The lid on the sectoral equity caps for foreign direct investment (FDI) in the retail trade is likely to be lifted very soon. A meeting of the group of ministers (GoM), constituted to review the FDI policies and decide the necessary changes, is being scheduled immediately after the minister for commerce and industry, Murasoli Maran, is back from the WTO meet in Doha, sources said.
A note circulated by the ministry of commerce to the GoM has proposed permission for FDI up to 100 per cent in retail trade subject to government approval on a case-to-case basis. Industry sources said that an administrative Act is likely to be mooted to permit 100 per cent FDI in retail sector which do not need the consent of the parliament nor the approval of the cabinet.
The reason for the administrative Act is the vocal opposition from within the government to approve 100 per cent FDI in the retail sector. Adversaries of this move state that the sector is being opened, in spite of any obligation under WTO to open up the retail sector for FDI.
Critics draw attention to the Competition Commission’s recent probe in Britain on supermarkets operating against the public interest. The Commission had accused giant retailers like Tesco, Sainsbury, Safeway, Wal-Mart’s Asda and Willam Morrison of charging extra in areas with less local competition while selling staple items at rock bottom prices to drive out small grocers in areas of competition.
Meanwhile, the note circulated to the GoM states that India is estimated to have the highest retail outlet density of around 12 million retail outlets. However, the organised retail sector in India only accounts for two per cent of the total retail sales in the country as compared to USA (85 per cent), Malaysia (55 per cent), Thailand (40 per cent), Brazil (36 per cent) and China (10 per cent). “A strong FDI presence in retail sector would act as a driving force in attracting FDI in upstream activities as well, especially in food processing and packaging industries because many large retail chains also promote their own brands by way of backward integration/contract manufacturing,” the note states. The report quotes the McKinsey study (India: The Growth Imperative 2001), that reforms can increase retail productivity by 2.5 times and annual output by 12 per cent, creating eight million jobs.
The factors impeding retail productivity and growth in India, according to the McKinsey study, is the low domestic consumption, low sales volume, lack of merchandising skills in terms of inventory, low capital intensity and too many middle-men between the producer and the consumer. The GoM constituted to review existing sectoral policies and sectoral equity caps for FDI consists of minister of finance, minister of commerce and industry, minister of communication, minister of chemicals & fertilisers, minister of external affair and ministry of small scale industries.
The reason for the administrative Act is the vocal opposition from within the government to approve 100 per cent FDI in the retail sector. Adversaries of this move state that the sector is being opened, in spite of any obligation under WTO to open up the retail sector for FDI.
Critics draw attention to the Competition Commission’s recent probe in Britain on supermarkets operating against the public interest. The Commission had accused giant retailers like Tesco, Sainsbury, Safeway, Wal-Mart’s Asda and Willam Morrison of charging extra in areas with less local competition while selling staple items at rock bottom prices to drive out small grocers in areas of competition.
Meanwhile, the note circulated to the GoM states that India is estimated to have the highest retail outlet density of around 12 million retail outlets. However, the organised retail sector in India only accounts for two per cent of the total retail sales in the country as compared to USA (85 per cent), Malaysia (55 per cent), Thailand (40 per cent), Brazil (36 per cent) and China (10 per cent). “A strong FDI presence in retail sector would act as a driving force in attracting FDI in upstream activities as well, especially in food processing and packaging industries because many large retail chains also promote their own brands by way of backward integration/contract manufacturing,” the note states. The report quotes the McKinsey study (India: The Growth Imperative 2001), that reforms can increase retail productivity by 2.5 times and annual output by 12 per cent, creating eight million jobs.
The factors impeding retail productivity and growth in India, according to the McKinsey study, is the low domestic consumption, low sales volume, lack of merchandising skills in terms of inventory, low capital intensity and too many middle-men between the producer and the consumer. The GoM constituted to review existing sectoral policies and sectoral equity caps for FDI consists of minister of finance, minister of commerce and industry, minister of communication, minister of chemicals & fertilisers, minister of external affair and ministry of small scale industries.