Economic survey bats for FDI in multi-brand retail

March 15th, 2012 - 4:52 pm ICT by IANS  

Pranab Mukherjee New Delhi, March 15 (IANS) Even as foreign equity in multi-brand retailing has eluded political consensus, India’s economic survey has pushed for a phased opening up of the sector beginning with large metros.

“Allowing FDI in multi-brand retail is one of the major issues in this sector. This could begin in a phased manner in the metros, with the cap at a lower level coupled with incentivizing the existing ‘mom and pop’ stores (kirana shops) to modernize and compete effectively with the retail shops, foreign or domestic,” said the survey.

The decision to allow foreign direct investment (FDI) in multi-brand retail was rolled back after a huge furore in the parliament with opposition and even key constituents of the United Progressive Alliance government vehemently opposing it.

“While agricultural marketing could improve immensely with the growth of modern retail trade, the revenue to the government could also increase, as at present the retail sector is largely unorganized and has low tax compliance,” the review which was presented Thursday in parliament by Finance Minister Pranab Mukherjee added.

With a high GDP growth in the last five years, and high growth in consuming population, the retail business is of late being hailed as one of the sunrise sectors
in the economy.

A. T. Kearney, an international management consultancy firm, has identified India as one of the topmost retail destinations.

Retail trading companies have witnessed a decline in sales in 2010-11 by 12 percent and so far in 2011-12 by 9.4 percent.

A sharp rise in prices of branded apparels, due to the imposition of 10.3 percent excise duty as well as a rise in prices of yarn and fabrics, led to lower consumer spending and this has hit the sales volumes of garment retailing companies.

However, during 2012-13 sales for organised retail as a whole is expected to grow by 15.7 percent.

Since 2006, India has been allowing FDI in single brand retail to the extent of 51 percent. In January 2012, the government removed restrictions on FDI in the single brand
retail sector, allowing 100 per cent FDI.

The survey goes on to blame coalition politics and its resulting constraints on the government to holding up of the key reform.

It also recommended reforms in the way mandis conducted their business — something which would be beneficial to organised retailers.

“Improved mandi governance is an area of concern. A greater number of traders must be allowed as agents in mandis. Anyone who gets better prices and terms outside the Agricultural Produce Marketing Committee (APMC) or its farmgate should be allowed to do so,” the survey said.

Another key input is taking out perishable items from the ambit of the APMC act as the government regulatory mandis sometimes prevent retailers from integrating their enterprises with those of farmers.

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