FDI in multi-brand retail on the back burner again

Averse to opening another political front, govt won’t take a call before next financial year.

The much-awaited multi-brand retail policy allowing foreign direct investment (FDI) in the sector has been put on the back burner. Officials close to the developments say the government is likely to take a call on the matter only in the next financial year. The officials say no “concrete move” has yet been taken to take the matter to the Union cabinet for approval after the recommendation of the Committee of Secretaries (CoS) on July 22 to allow 51 per cent FDI.

A lack of political will is seen as the main reason for the government not taking up the proposal actively, even two months after the in-principle nod by the CoS. The government is under pressure for several reasons, and it is not in a mood to open a new front, according to sources in the know. Another reason being cited is the absence of a consensus between ministries over the policy riders.  

Officials across ministries said FDI in multi-brand retail was at least eight to 12 months away, if not more. “Any policy decision on this issue is expected only after April 2012,” an official said. FDI in retail seems to be off the map now, pointed out another official in the know of things. He added, “It is not coming at least this financial year.”

“When the CoS came out with such a long list of riders, it was a clear indicator that many things had to be ironed out before a policy could be put in place,” a top industry representative said. Some others, with close links to the retail sector, argued the government was facing opposition on various fronts and, therefore, was not likely to take any decision on such a sensitive subject.

A secretary, who was part of the CoS, said the safeguards or riders in allowing FDI in multi-brand retail were still in the process of being ironed out. The policy riders approved by the CoS said investing at least 50 per cent of the FDI in back-end infrastructure should be mandatory, 30 per cent sales turnover would have to come from small traders, and retailers would have to source at least 30 per cent manufactured items in value terms from small and medium enterprises.

Senior BJP leaders admit the party cannot possibly stop the government from allowing foreign companies in multi-brand retail if it has already made a decision. But they are asking BJP-ruled state governments to oppose the decision at the highest level. The states that have been more vocal against the retail FDI move include Gujarat, Karnataka, Bihar, Madhya Pradesh and Himachal Pradesh.

International retail majors waiting for the sector to open up for years include the US-based Walmart, the UK’s Tesco, and Carrefour of France. 

Some of the other global retailers Business Standard contacted after the CoS nod, including Sears, Kmart, Target, JC Penney, Saks Fifth Avenue, Selfridges, Galeries Lafayette, J Sainsbury, Woolworths, Harrods, Nordstrom, Albertsons, and Macy’s, said they were not actively exploring the India market.

While FDI is not permitted in multi-brand retail, single-brand outlets are allowed up to 51 per cent foreign investment. In cash and carry or wholesale trade, up to 100 per cent FDI is allowed.    

(With inputs from Gyan Verma in New Delhi.)