FDI in retail: States to have final say in opening stores

In what could be a dampener to the global retail chains, the Centre is considering allowing 51% FDI in the politically sensitive sector with a rider that permission of the states would be a must to open stores, sources said.

"The states' permission would be required, since the trade is a state subject," an official said.

The development could be a big dampener for the global chains like Wal-Mart, Metro and Carrefour which have been waiting since long for India to open foreign direct investment (FDI) in the multi-brand retail, industry sources said.

They said even if the Centre were to throw open the sector to overseas investment, several states, particularly those ruled by the BJP, might not allow entry of these chains, thus impacting their front-end plans.

Committee of Secretaries (CoS) headed by Cabinet Secretary Ajit Kumar Seth, which met on June 15, has discussed the issue of allowing FDI into the politically sensitive sector.

"All the secretaries were of the consensus to open the sector for foreign investors. However, before sending a final Cabinet note, the CoS will meet again soon to finalise the modalities," the official said.

The Department of Industrial Policy and Promotion (DIPP), which is piloting the issue, is happy with the support it received from the Inter-Ministerial Group (IMG) on Inflation, headed by Chief Economic Advisor in the Finance Ministry, Kaushik Basu.

The group has strongly advocated opening the sector to foreign investment, as it feels the layers between the farm gate and the consumers need to be cut through a strong supply chain and back-end logistics.

DIPP had proposed other riders as well. These included a minimum FDI of $100 million (about Rs 450-460 crore)half of which must be invested in the back-end infrastructure like cold storage, soil testing labs and seed farming.

At present, India allows FDI only in single brand retail chains like Nike, Louis Vuitton with a cap of 51%. It also permits 100% overseas investment in wholesale cash-and-carry format.

Several of the big chains like Wal-Mart and Carrefour have set up their joint ventures in India, waiting in the wings for their full-scale entry into the multi-brand retailing.

A discussion paper on opening of the sector has been in the public domain since July 2010. Among others, states were also consulted by a committee which evaluated the feedback on the initial proposal.
    
India's total retail sector is estimated at $590 billion, with unorganised sector accounting for $496 billion, according to an Icrier report.
    
The government's policy on retail investment will also help in boosting the country's FDI, which declined by 25% to $19.42 billion in FY11 from $25.83 billion in the previous fiscal.