Is there momentum to open retail sector to FDI?3 min read . Updated: 01 Nov 2010, 11:45 AM IST
Is there momentum to open retail sector to FDI?
Is there momentum to open retail sector to FDI?
New Delhi: India’s moves to open up its multi-brand retail sector to foreign investors is a headline issue for US President Barack Obama’s visit to India, closely watched by retail giant Wal-Mart Stores Inc.
India allows 51% in single-brand retail. Overseas investment in multi-brand retail -- modern supermarkets -- is only allowed in wholesale.
Here are some questions and answers on opening up India’s retail sector:
Who has been talking up FDI’s prospects?
Wal-Mart made its latest pitch for opening the sector weeks before Obama’s visit and trumpeted what CEO Mike Duke called “very positive" signals from the government.
Union commerce minister Anand Sharma, whose department released a widely-debated paper on the subject, has talked up the positives on job creation and reduced waste, though he was been careful not to commit to a definite view.
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The issue picked up momentum after the paper’s release.
Media reports said Prime Minister Manmohan Singh wanted to open the sector to 51%, though he will have to tread carefully as members of his Congress party fear a political backlash.
An adviser who is close to Singh, Montek Singh Ahluwalia, said there was “nothing wrong" with opening up the sector, while the food processing minister openly gave his support.
Who is against the move?
Perhaps the biggest obstacle is sections of the ruling Congress party. Many in the party are worried opening up the sector could see millions of job losses among small shopkeepers that are a mainstay of Indian consumers.
Main opposition parties including the Bharatiya Janata Party, whose support base includes traders and wholesalers, railed against the proposal on fears the entry of giant corporations would kill off hundreds of thousands of small family-run outlets.
Communist parties say the move would create unemployment. The Left played a big role in squashing earlier moves to open up the sector during Singh’s first term when they were part of government.
What are chances of retail opening up?
Civil servants have talked up the new momentum but at the same time have cautioned against getting over-enthusiatic. “India wants to show Obama some movement on this when he visits India. At the same time, with key state elections and a parliament session approaching, they will tread cautiously on this," a finance ministry source told the news agency.
“So while the government has signalled its intention to explore opening up this sector, it’s far from a done deal."
India has seen all this before in Singh’s first term. Despite a lot of buzz, attempts at opening the sector stalled. The fact that no specific cap was proposed by the discussion paper, unlike in other controversial sectors such as defence, signals caution.
An attempt by Reliance Industries to open up supermarkets in Uttar Pradesh, India’s most populous state, was abandoned in 2007 after protests from small traders and political parties.
What would be the impact of opening multi-brand retail?
The move would present a massive opportunity to the world’s biggest retailers such as Wal-Mart, France’s Carrefour and Britain’s Tesco to enter a market of 1.2 billion people and near double-digit economic growth.
Supporters say foreign money would ramp up investment in logistics such as cold storage and unclog supply bottlenecks. Between 30-40% of post-harvest produce goes to waste in a country where nearly half the people are malnourished.
This would help tame double-digit food inflation that pushed the Reserve Bank of India to raise rates five times since March. A more organised retail sector, which currently is only around 5% of total retail, would also improve tax receipts.
The move could generate huge employment in the multi-brand retail sector and, while fears of job losses for smaller outlets are real, analysts have often played down the impact.
Farmers may also benefit because they could sell direct rather than relying on middle-men.
Political unrest would be near-inevitable. Singh’s government has grappled with huge strikes and protests over soaring food prices and fuel reforms. Even if he pushed the reform through, huge upheaval could force the government to backtrack.
What would be the next policy steps?
The government is listening to the views of major stakeholders in response to the discussion paper. A final policy draft will then be discussed by key ministries including finance, commerce, food and consumer affairs. This would then go to the Cabinet and would not need parliamentary approval if passed.