The government has finally decided to bite the bullet on allowing 51 per cent foreign direct investment (FDI) in multi-brand retail, albeit in a different format. The long-pending Cabinet decision is set to be notified by the second week of September, after the Parliament’s monsoon session is over, with a clear message that the execution of the decision would lie in the court of the states.
A top official told Business Standard the main opposition that came from the United Progressive Alliance (UPA)’s ally, Trinamool Congress, had been “taken care of”. “The main thing now is that Prime Minister Manmohan Singh wants to roll out the decision. Suspending the move had given an extremely negative impression of India’s decision-making powers to the world. So the decision has to be notified now, no matter what,” the official, who did not want to be identified, said.
The plan is to push the decision once the monsoon session of Parliament is over by September 7.
“We are ready with the entire policy. It is only a matter of removing the finger from the pause button. The decision has already been approved by the Cabinet. We will now have to notify it, which will be definitely done by the second week of next month,” the official said.
The idea is to go ahead with the decision and let those states favouring it invite FDI in their areas, as well as respect others that are against the move.
Earlier, in June, Commerce and Industry Minister Anand Sharma had written letters to key state governments, seeking their support for the move.
So far Congress-ruled states such as Rajasthan, Delhi, Uttarakhand and Manipur have extended their support. Bharatiya Janata Party (BJP)-ruled state Himachal Pradesh has also given its consent, according to a senior official from the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry.
Last week, during the fourth meeting of the government-industry task force, Sharma had assured the industry of a “package on FDI”. Besides, multi-brand retail, the package will include some key clarifications in the FDI policy on single-brand retailing.
Earlier, the Cabinet had cleared 100 per cent FDI in single-brand retail and up to 51 per cent in multi-brand retail. However, after persistent protests by Trinamool Congress and the Opposition, the government notified only one of the decisions — hiking FDI from the then cap of 51 per cent in single-brand retail.
Multinational corporations such as Swedish homeware company Ikea and the Netherlands-based Zara now want certain changes in rules of that decision.
The move to allow up to 51 per cent FDI in multi-brand retail will come notwithstanding recent recommendations by the Prime Minister’s Economic Advisory Council to lower the cap on FDI to 49 per cent to evolve a greater consensus.
The entry of large retail chains in India is expected to benefit consumers through price reductions facilitated by the reduction in intermediaries effected by retail giants such as Walmart, Tesco and Carrefour. Investments in cold-storage and warehousing will ease supply-side pressures that have driven food inflation to double digits, according to an analysis by ICRA.
The notification of the multi-brand retail FDI decision would be yet another move by the government to assuage the sentiments of foreign investors after it directed a review of the General Anti-Avoidance Rules and retrospective amendments to the Income-Tax Act.