Govt mulls 26 per cent FDI in multi-brand retail again

The government is re-considering a proposal to allow foreign direct investment (FDI) of up to 26 per cent in multi-brand retail, a move that will allow global giants like Wal-Mart Stores Inc and Tesco Plc to gain a foothold in India.

Speaking at Assocham’s international retail summit, Rakesh Kacker, additional secretary in the Department of Consumer Affairs, said the government would take a decision at an “appropriate time”. He did not specify the time-frame.

The move has been in abeyance due to protests from across the political spectrum.

Kacker’s comment is at variance with Commerce Minister Kamal Nath’s remark on NDTV.com in July that the government is not looking at major reforms in the sector.

At present, 100 per cent foreign investment is allowed only in cash-and-carry businesses, which supply to small businesses. Also, 51 per cent foreign equity is permitted in single-brand outlets, which sell only one particular brand of products.

In 2007, the government had commissioned two studies to find the impact of the organised retail sector on the economy and the farm sector amid protests from a range of political parties against opening multi-brand retail to foreign investment.

The study, by economic think-tank Indian Council for Research in International Economic Relations (Icrier), found that unorganised retailers near malls and superstores experienced a decline in sales and profit in the initial years of the entry of organised retailers. The study found that the impact had weakened over time.

With organised retail constituting only 4 per cent of India’s retail market of $309 billion, many international players have an interest in entering the sector and and domestic conglomerates like Reliance Industries Ltd (RIL) and the RPG Group have already set up chains of stores.

The retail sector is expected to grow to $590 billion in 2011-12, an 83 per cent increase over 2006-07. Within this period, organised retail is likely to grow at 45-50 per cent a year and quadruple its share in overall retail trade to 16 per cent by 2011-12, according to the Icrier study.