FDI alone won't resolve backend issues of retail: Plan panel

Experience from 11th 5-year plan shows that legitimate concerns of front-end investment which would lead to more import, low farm prices remain

As the country debates the benefits of allowing 51% Foreign Direct Investment (FDI) in multi-brand retail, the Planning Commission in its draft 12th five-year plan document has said that FDI alone won’t be enough to resolve backend issues of retail trade that has so far held back big domestic investment in the area.

The draft document said that though FDI has the potential to link farmers to wider markets by expanding exports, experience from 11th five year plan shows that legitimate concerns remain of front-end investment outpacing backward linkages, which could lead to more imports and lower farm prices.

The document was discussed at a meeting of the full Planning Commission chaired by Prime Minister Manmohan Singh last month.

It will now be vetted by the union cabinet before being placed before the National Development Council for final approval.

The 12th five-year plan period has started from April 1, 2012 and will culminate on March 31, 2017.

The government recently notified 51 foreign direct investment in multi-brand retail, after much deliberation. The decision has sparked off an intense debate in the country as to whether FDI in retail will benefit farmers and improve the storage and logistics situation in the country.

The Commission, however, expressed little apprehension over the benefits of FDI in growth of front-end investment.

It said that deeper pockets and technology may accelerate front-end investment in logistics, quicken consolidation of retail trade and create new propeitory supply chains.

It, though, was doubtful of the same impact on back-end investments because of muted response of domestic corpora rate sector so far.

The report said that it therefore means that FDI will thus increase not lessen the importance of marketing reforms, aggregation of the bottom and public funding of standalone infrastructure.