'FDI alone won't address back-end issues in retail'

PlanCom raises doubt, as domestic companies have shown a muted response so far

In its draft 12th Five-Year Plan document, the Planning Commission has said foreign direct investment (FDI) alone wouldn’t resolve the retail segment’s back-end woes, which have prevented major domestic investments in the sector.

The document said, though FDI had the potential to link farmers to wider markets by expanding exports, last Five-Year Plan showed concern on front-end investment outpacing backward linkages remained, and this could lead to more imports and lower farm prices.

Recently, the document was discussed at a meeting of the full Planning Commission, chaired by Prime Minister Manmohan Singh. It would now be vetted by the Union Cabinet and placed before the National Development Council. Recently, the government had allowed 51 per cent FDI in the multi-brand retail sector. The decision has sparked intense debate on whether the move would benefit farmers and improve the country’s storage and logistics situation.

The Planning Commission, however, expressed little apprehension over the benefits of FDI in growth of front-end investment. It said deeper pockets and technology might accelerate front-end investment in logistics, quicken consolidation of retail trade and create new proprietary supply chains. However, it raised doubt on whether these benefits would be extended to back-end investment, as so far, domestic companies had shown a muted response. The report added FDI would, therefore, increase, not reduce, the importance of marketing reforms and public funding of standalone infrastructure.