Govt moots retail sector watchdog

The Centre is mulling over creation of an independent body to regulate the country’s vast retail sector. The retail regulatory authority would ensure a level playing field for indigenous retail traders if the government opens the sector to more foreign participation. The Ministry of Consumer Affairs and Food has convened a meeting on July 8 in Delhi to discuss this and other proposals and chart a comprehensive plan for the sector, according to the agenda paper of the meeting.

The move is being seen as a precursor to opening the retail sector.

At present, India does not allow foreign investment in multi-brand retail, while up to 51 per cent is allowed in single brand retail. Foreign direct investment (FDI) of up to 100 per cent is allowed in wholesale cash-and-carry trade. The ministry has invited, among others, representatives from the Department of Industrial Policy and Promotion for the July meeting.

The meeting is also likely to take up for discussion a proposal to enact a National Shopping Mall Regulation Act.

The need for a model legislation has been felt to prevent large domestic retailers from displacing neighbourhood kirana stores, a sensitive issue in India, where the retail market has been dominated by unorganised retailers. It is proposed that environmental and urban laws be strictly enforced to limit multiplication of malls and corporate retailers in a particular area. It is also suggested that licences for opening shopping malls be linked to the density of population and the stage of existing competition in retail in the zone.

The meeting will also discuss whether there is a need to set up a national commission to study the problems of the retail sector.

The Department of Consumer Affairs has suggested a two-stage discussion on the retail sector, one at the level of the state governments on the recommendations made by the Parliamentary Standing Committee on Commerce. At another level, the department has proposed to hold talks with academicians, non-governmental organisation, and others on opening the retail sector.

With pressure building on the government to further open the sector for foreign investment, the commerce and industry ministry had prepared a concept note a few months ago to allow up to 51 per cent FDI in multi-brand retail other than primary goods (foods, groceries and vegetables), but with some stiff riders. 

The note was prepared to generate a debate among key government ministries which are involved in a re-look of the retail sector as well as the FDI policy.

The commerce ministry was also keen to permit FDI in retail of foodgrain as well as other essential commodities to create a parallel network to the public distribution system, which has become notorious for its leakages.

The core of the plan is to allow FDI in retail, provided the retail stores are located in cities with a minimum population of one million. The move aims to protect vendors in small cities.

The ministry had also suggested minimum capitalisation norms for companies investing in retail, in addition to a minimum built-up area rule for their retail outlets.

Since 2006, when FDI was partially allowed in retail, the government has approved 54 FDI proposals in the sector and the country has received an inflow of Rs 822.70 crore.

With 15 million outlets, India’s retail sector is highly fragmented. Only 4 per cent of the outlets are bigger than 500 square feet in area and the remaining 96 per cent are in the unorgainsed sector.

There have been fears that with a liberal FDI regime, the big global retailers would go in for predatory pricing, virtually destroying the small retailers. That is the reason why the government has treaded cautiously in this sector.

Companies such as Wal-Mart, Tesco and Carrefour, some of whom are already in cash-and-carry business, have been trying to convince the government to allow them access to India’s retail sector.

However, there is a growing view that FDI, in addition to bringing in large investments, would also help in reducing costs, create new employment opportunities, and improve conditions for small manufacturers and retailers. And, the advantage of proximity to the consumer and familiarity would ensure that small retailers co-exist with the big boys.