The government is likely to announce significant policy measures relating to allowance of foreign direct investment (FDI) in the multi-brand retail segment, even as the Department of Industrial Policy and Promotion (Dipp) under the Ministry of Commerce and Industry is giving final touches to the draft report prepared by an inter-ministerial committee.

The committee, constituted under the Ministry of Consumer Affairs and Public Distribution, has prepared a draft report by taking the concerns and viewpoints of all stakeholders concerned.

According to the present rule on retail, 100 per cent FDI is allowed in wholesale cash-and-carry trading and 51 per cent in the single-brand category, but completely prohibited in multi-brand retail.

The report has been given to Dipp, which is giving its final touches. After this, it would be sent to the Cabinet Committee on Economic Affairs to be translated into a policy, senior officials told Business Standard.

Officials also said the government would make the announcement at an opportune time to avoid any uproar as any move in this would have far-reaching political implications, besides resistance from the general public, as it concerns employment and livelihood for millions.

It is also likely that the government might announce the policy measures relaxing FDI norms in multi-brand retail during the coming Budget for 2011-2012. This committee was formed after Dipp floated a discussion paper on liberalising FDI norms in multi-brand retail in July last year.

Justifying the government’s stance on the issue, Commerce and Industry Minister Anand Sharma had earlier said the idea was to create a broad-based consensus in policy formulation for further development of the sector. The ministry itself wants to open up the sector for 51 per cent FDI, as is allowed in single-brand retail.

While the Ministry of Consumer Affairs and Public Distribution has suggested a threshold of 49 per cent FDI in multi-brand retail, the micro, small and medium enterprises ministry has recommended 18 per cent. However, the Ministry of Communications and IT said liberalising the sector would have dire consequences for electronics manufacturers.

With FDI inflows dwindling, the government is under severe pressure to boost the country’s investment figures. The total FDI equity inflows during April-October stood at $17,365 million compared to $23,781 million during the corresponding period in 2009-10, say official statistics.

Global multi-brand retail chains have also been pushing India to open up the sector for FDI in order to tap the billion-plus consumers market. International retail juggernauts such as Wal-Mart, Carrefour and METRO have opened up their cash-and-carry stores in order to tap the market.

Wholesale cash-and-carry was thrown open for 100 per cent FDI in 1997, subject to prior approval from the government. It was brought under the automatic route in 2006. During April 2000-March 2010, $1.779 billion worth of FDI were received in the sector. In 2006, the government permitted 51 per cent FDI in single-brand retailing. Since then, total FDI received till March 2010 was to the tune of $194.69 million in this category.

Source: India Brand Equity Foundation
Date: January 17, 2011