Govt divided on retail FDI as FinMin says no

The government is divided over allowing foreign direct investment (FDI) in multi-brand and foodgrain retailing.

While the Ministry of Finance is opposed to any change in the existing retail FDI policy, the Agriculture and Consumer Affairs Ministries, along with the Planning Commission, are open to the proposal mooted by the Ministry of Commerce and Industry. At present, FDI in these areas of retailing is banned.

The finance ministry’s position gains significance in the run-up to Walmart CEO Mike Duke’s visit to India next week. He is expected to pitch for the opening of this sector to foreign investment.

The finance ministry has informed the Department of Industrial Policy & Promotion, under the commerce ministry, that it will be premature for the ministry to express its views on the issue and it can do so only at a time of inter-ministerial consultations, prior to placing a draft policy before the Cabinet.

The ministry, in this recent communique, has said the subject is of widespread interest and has socio-political implications and, therefore, the overall views of stakeholders are very important.

The discussion paper, however, has found favour with the Ministry of Consumer Affairs, Food and Public Distribution. The ministry has contended that FDI in multi-brand retail should be permitted, with a cap of 49 per cent. This will help local enterprises to upgrade their technology and practices to face competition from MNCs, the ministry has argued. It further says FDI should be in the form of fresh infusion of capital in an enterprise and not by merely transferring existing shares of a local owner.

The Ministry of Agriculture, in its response, has said India should open retail to foreign investment to improve efficiencies and for introducing competition. It is highly unlikely, it has argued, that several foreign retail chains will flood the local market, taking over a significant share of agriculture produce and marketing.

The agriculture ministry has agreed to a proposal that recommends a minimum of 50 per cent of the proposed FDI be invested in back-end infrastructure, to help channelise FDI in neglected areas. It is also willing to allow FDI in this sector without any caps.

The Planning Commission, in its reply, has contended that FDI in multi-brand retailing should be permitted, since this will have positive direct and indirect effects that are of value to the national economy.

The Commission has said the fear of job losses is exaggerated. All forms of mechanisation and modernisation do away with certain kinds of activity, as it ushers new forms of more productive and better paid occupations — and that is the essence of economic progress.

It has also said that introduction of modern retail and supply chains will help the transition of incumbents in the retail trade into more efficient intermediaries and this will bring about the much needed modernisation in the retail trade business.

The government currently allows FDI in retail up to 51 per cent in single-brand retailing and 100 per cent in cash-and-carry wholesale trade.