51% foreign stake in retail gets CoS nod

India opens FDI floodgates

India on Friday moved closer to a major economic reform, with a committee of secretaries (CoS) giving an approval in principle for allowing up to 51 per cent foreign direct investment (FDI) in multi-brand retail.

The move was keenly awaited by global retail companies such as Walmart and Carrefour. The decision, when implemented, is expected to bring in huge foreign investments in the retail sector and help the government counter the charge that it is suffering from a policy paralysis.

However, the CoS, chaired by Cabinet Secretary Ajit Kumar Seth, suggested riders such as keeping the minimum FDI at $100 million (Rs 450 crore), of which at least half would have to be in back-end infrastructure such as cold storages, soil testing labs and seed farming.

Some officials said another round of CoS meetings was possible, but officials of the Department of Industrial Policy and Promotion (Dipp) were confident the proposal would now go to the Cabinet for approval.

At present, India allows 100 per cent FDI in cash & carry wholesale trade and up to 51 per cent in single-brand retail. The size of India’s retail sector is $590 billion (Rs 26 lakh crore), according to a report by Icrier.

The share of organised retail in India is just over 4 per cent. It is 66 per cent in Japan, 55 per cent in Malaysia, 30 per cent in Indonesia and 20 per cent in China.

Official debate on FDI in multi-brand retail gathered steam after Dipp came out with a discussion paper in July last year. Dipp supported a 51 per cent cap, while the consumer affairs ministry wanted a 49 per cent cap. Many fear the entry of multinationals in multi-brand retail will throw small retailers out of business.

The Bharatiya Janata Party (BJP) said it would oppose the decision and ask its chief ministers to stick to the party stand. “The party demands that the Cabinet should not take the CoS decision forward. The decision is anti-people,” said BJP spokesperson Nirmala Sitharaman.

Chandrajit Banerjee, director-general of the Confederation of Indian Industry, said: “The experience in other countries shows this (FDI in multi product retail) has not come in the way of small retailers (thriving).”

Earlier, an inter-ministerial group under the chairmanship of Chief Economic Advisor Kaushik Basu to suggest measures to fight inflation had pitched for allowing FDI in multi-brand retail. “It is time for India to allow FDI in multi-product retail and (the report) proposes the government consider this at the earliest,” it said.