Petrol price rise offers FDI hope to retail chains

The recent decision by state-owned oil marketing companies to increase petrol prices steeply has raised hopes of retail chains, which expects the government will now initiate steps to take the long-pending decision on allowing foreign direct investment (FDI) in multi-brand retail.

The oil companies raised petrol prices by Rs 7.50 on Wednesday, a tough but unpopular decision which many see as a strong signal from the government that it’s now stepping on the reform pedal.

Many of the retail chains, which have been on a silent mode for months, sent out feelers on Thursday that all was not lost on the FDI front. In another indication that things could be moving, India head of French retail chain Carrefour SA, Jean Noel Bironneau met Commerce and Industry Minister Anand Sharma on Thursday. Carrefour is one of the chains waiting for the government’s decision on FDI in multi-brand retail

It is learnt that the Centre had not held any concrete dialogue with the ‘stakeholders' except for state governments over the past six months since the Cabinet decision to allow 51 per cent FDI in multi-brand retail was kept in abeyance.

Although there was a general expectation that the retail FDI talks would be revived after the Assembly elections held across five states earlier this year, nothing moved on that front. However, Wednesday’s petrol price hike is being seen by many as the government stepping up the reform measures.

The buzz in the Ministry of Finance is also that the government may once again weigh the options of allowing FDI in multi-brand retail. The Cabinet decided to allow FDI in the sector on November 24, 2011, but within 10 days Finance Minister Pranab Mukherjee announced in Parliament that the move would be put off due to resistance from allies and opposition parties.

Even though ministers continued to talk of opening up the retail sector in a phased manner in states, the industry had not taken that seriously in the last few months, a retail chain representative told Business Standard. Also, a senior official at the Department of Industrial Policy and Promotion, the government’s nodal agency for issues related to retail, had said this week that there’s no movement on permitting FDI in the sector.

“There has been no talk with the industry ever since the FDI policy was put on hold after the Cabinet decision of November 2011,” a chief executive officer (CEO) of a retail group said. “Consultations have only been with chief ministers of different states and sometimes with farmers’ lobbies to work on a consensus formula,” the CEO said, requesting anonymity.

Another top executive at a company that’s keen on retail FDI said the potential foreign partners’ confidence level had dipped due to the policy flip-flop displayed by the United Progressive Alliance government. “Potential foreign partners are keenly watching the developments,” he added.

A DIPP official said: “The stakeholder meetings happened initially, even that is not happening anymore.” Another executive representing a business chamber said: “I don’t see anything happening on the ground yet.”

The commerce minister has now indicated that the Centre is talking to the states for a phased introduction of FDI in multi-brand retail, depending on the inclination of a state to do so.

Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry, said: “I’m enthused by the minister’s statement that states could be given the independence to choose the strategy to allow FDI in retail. It should be done quickly.”

According to Arvind Singhal, chairman, Technopak Advisors, the government has not been engaged with the stakeholders, the biggest of them being the consumers. “Consumers are the starting point for the retail industry, and it is them who bear the brunt of inflation.”

Among the big international players who are waiting for FDI to be allowed in multi-brand retail are US-headquartered Wal-Mart Stores Inc, UK’s Tesco Plc and France’s Carrefour. While top representatives from these chains were regulars in the corridors of power earlier, even the frequency of their visits came down in the recent months, industry sources said.