Centre seeks views of states on FDI

The Centre has asked state governments for their views on foreign direct investment (FDI) in multi-brand retail, before finalising a policy on the contentious issue.

The draft note prepared by the Department of Industrial Policy & Promotion (DIPP), has clearly stated while FDI in multi-brand retail should be allowed up to 51 per cent, only states have the right to give the final permission to set up such stores.

A senior government official involved in the process said, “The Cabinet Secretariat has sought the states' views on this issue. Though some states are open to the idea of allowing multi-brand retail, others fear major upheaval by traders.”

In their informal sounding out, he said the Bharatiya Janata Party-ruled states had resisted allowing multi-brand retailing. “However, the government is consulting all stakeholders and we hope to build a consensus gradually,” said the official.

According to the draft policy, states are key to the success of the policy permitting FDI in multi-brand retail. They have been allowed to put conditions for integrating smaller retailers or kirana merchants in the value chain, as there is a fear that smaller shopkeepers can’t compete with their bigger rivals and will have to shut shops.

Also, 30 per cent of the value of the manufactured items procured (excluding food products) has to be sourced from the SME sector. The onus will be on states to monitor compliance with the various restrictions.

A committee of secretaries, headed by Cabinet Secretary Ajit Kumar Seth, was expected to meet again on this issue, the official said.

While the draft note has limited the scope of FDI to only cities with over one million population as part of a strategy for calibrated opening of multi-brand retail, the consensus among top officials is to restrict it to six cities in the beginning. These are Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore. Otherwise, they argue, it will be difficult to monitor, as there are 35 cities in this category, based on the 2001 Census.

While all key ministries are on board, the finance ministry has said it would give its opinion once the final note for the consideration of the Cabinet was prepared.