Budget May Lay Ground For FDI in Multi-Brand Retail

Move to tame surging food prices & fetch better returns for farmers

Finance Minister Pranab Mukherjee is likely to announce a road map for foreign investment in multi-brand retail in the union budget after getting positive response from other ministries, a government official said.
Entry of foreign retailers such as Wal-Mart, Carrefour and Tesco will help tame surging food prices and ensure farmers get better prices for their produce as they will be able to remove inefficiencies in the supply chain and procure directly from farmers, at least two policy makers said. "An announcement related to FDI in multi-brand retail is expected in the budget as views of all ministries have favoured it," a government official said, requesting anonymity.
The country's existing foreign investment policy, aimed at protecting owners of kirana shops, bars global retailers from setting up retail chains in India. The country allows 100% foreign investment in wholesale business and 51% FDI in single-brand retailing. If the proposal is announced in the union budget, it will satisfy a longstanding demand of multinational retailers like Wal-Mart and Carrefour that have been seeking to enter one of the fastest-growing economies in the world for several years now.
The Indian retail industry is estimated at $500 billion, of which organised retail accounts for only $25 billion. "We are hopeful the finance minister will announce a road map for FDI in multi-brand retail in the budget," Bharti Enterprises MD Rajan Bharti Mittal said.
Bharti has an equal joint venture with the world's largest retailer, Wal-Mart, for a cash-and-carry chain and also operates multi-brand retail chain Easyday on its own.
MNC retailers waiting in queue to enter India
$25 billion
SIZE OF ORGANISED RETAIL WHEREAS INDIAN RETAIL SECTOR IS ESTIMATED AT $500 BILLION

• ARGUMENTS AGAINST FDI
Deep discount sales by foreign retailers will put at risk the livelihoods of kirana stores

• RETAIL FDI STATUS
India allows 100% foreign investment in wholesale biz and 51% FDI in single-brand retail Allowing FDI in Retail is a Politically Sensitive Issue
Mittal said modern retail, with its linkages and sourcing, will benefit farmers, small manufacturers and consumers.
It can cut food inflation by 50-70 basis points by reducing wastage and improving efficiency through supply chain management, he said.
Allowing foreign direct investment in retail is a politically sensitive issue as it might turn hundreds of thousands of pop-and-mom store owners in every nook and corner against the government. The Department of Industrial Policy and Promotion last year floated a consultation paper on the issue, inviting comments from all stakeholders. Minister of State for Commerce & Industry Jyotiraditya M Scindia said the government has received comments on the proposed policy reform from stakeholders such as ministries and states.
"Some state governments have supported allowing FDI in retail on the ground that it will encourage investments in backend infrastructure, reduce wastage and provide better price to farmers," he told Rajya Sabha on Wednesday. As per industry estimates, lack of back-end infrastructure results in wastage of about 40% of farm produce, worth 50,000 crore, every year. Among those supporting foreign retailers' entry is Haryana Chief Minister Bhupinder Singh Hooda. In a letter to Prime Minister Manmohan Singh, dated January 29, Hooda said India's current policies are not attracting adequate investments to create an efficient supplychain infrastructure, food processing capabilities and direct farm procurement. "It (building adequate infrastructure) can happen if FDI policy is amended," he said.
Last month, Cabinet Secretary KM Chandrasekhar had suggested FDI in multi-brand retail could be a remedy for spiralling food prices.
The argument against it is deep discount sales by foreign retailers will put at risk the livelihoods of neighbourhood mom-and-pop stores. Wal-Mart chief Doug McMillon, however, said FDI in multi-brand retail would not kill mom-and-pop shops, citing the example of Mexico where it entered in 1991. Even today, 50% of retailing there is done informally (kirana stores), he had said at the World Economic Forum in Davos last month.