Govt may remove FDI cap in single-brand retail

Govt may remove FDI cap in single-brand retail

India currently allows 51% foreign direct investment (FDI) in single-brand retail and 100% in wholesale operations.

The government has considered allowing foreign firms such as global retail giant Wal-Mart to invest in supermarkets, but lack of political consensus and concerns of small-shop owners have so far prevented the move.

In the absence of supermarket reform, Prime Minister Manmohan Singh’s government may free up the single brand sector to send a positive signal about the country’s investment climate, the Economic Times reported on Monday.

“It is under consideration," R.P. Singh told Reuters by phone, but declined to provide a time frame.

A slew of corruption scandals in the Congress party-led coalition have sparked huge street protests, rattled investors and stymied policy making in recent months, smothering hopes that Singh’s government would press ahead with a reform agenda.

Key economic policy changes, from tax reform to lifting investment caps in the banking and insurance sectors, are seen as crucial to maintaining the momentum of one of the world’s fastest growing economies.

The industry secretary had last week dismissed talk the supermarket reform was on the backburner, telling Reuters in an interview that it was moving “very fast" although fears of job losses in the unorganized retail needed to be addressed.

Foreign retailers such as Wal-Mart, Carrefour SA, Tesco Plc and Metro AG see India’s 1.2 billion population as one of the world’s last largely untapped markets.

The move is seen by many in government as crucial to tame high food prices, but the plan has not yet been approved by the cabinet, with job-loss concerns ahead of state elections next year and a general election in 2014 slowing policy.

Currently, up to 40% of India’s harvests rot because of inadequate cold storage and supply bottlenecks, a situation some economists say foreign money in supermarkets will help resolve.

A committee of top civil servants, of which R.P. Singh was a member, in July agreed to recommend to the cabinet allowing foreign firms to take a 51% stake in multi-brand retail operations.