FDI only permitted in retail logistics, back-end functions

FDI only permitted in retail logistics, back-end functions

New York: Far from opening its vast retail market to foreign investors, India is looking at ways to prevent large domestic players from displacing mom-and-pop stores—a sensitive issue in a market dominated by unorganized retailers.

“It is not (about allowing) foreign direct investment (FDI), the issue is that of large versus small retailers," commerce and industry minister Kamal Nath said at the first Pravasi Bharatiya Divas in New York on Sunday, while responding to a question on when India would open up its more than $330 billion (Rs13.13 trillion) retail market to foreign investors.

Nath’s comments rang alarm bells for Indian corporate retail players, who already are being shackled across states.

Last month, the Uttar Pradesh government ordered the closure of corporate-run food retail stores citing law and order problems, while Kerala has not permitted the opening of Western-style food retail stores in the state.

Asked if this meant large retailers would have to be prepared to close shop, Nath said, “That is not under my ministry. Ask the consumer affairs ministry."

Organized retailers account for roughly 3% of the retail market, with the rest made up of mom-and-pop and neighbourhood kirana (grocery) stores.

Nath said the Union government wants to promote only incremental growth in the retail sector, but did not elaborate how it would determine the number of small retailers who have been displaced by big corporates. “This is a very contentious issue," he added.

Nath said foreign investors are free to invest their money to create logistics or provide back-end operations. These are areas where the government allows 100% FDI.

Industry estimates suggest that over the next four years, organized retail in India will receive investments of more than $25 billion from both domestic and foreign players, which would make the size of organized retail in the country a $75 billion market.