‘FDI will help modernise retail sector, curb inflation’

July 23rd, 2011 - 7:58 pm ICT by IANS  

Manmohan Singh New Delhi, July 23 (IANS) Opening up multi-brand retail for up to 51 percent foreign direct investment would help curb inflationary pressure and modernise the sector, industries and analysts have said, welcoming the recommendation of an official panel.

“It is a great decision. We want this to happen as soon as possible,” Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI), told IANS.

A committee of secretaries headed by Cabinet Secretary Ajit Kumar Seth Friday gave in-principle approval for allowing up to 51 percent foreign direct investment (FDI) in multi-brand retail. This will allow global retailers like Wal-Mart, Carrefour and Tesco to enter the Indian market through strategic partnership in the multi-brand retail segment.

Kumar said entry of supermarket chains like Wal-Mart and Carrefour would modernise the retail sector in India.

“Getting foreign investment is one part, but the real benefit will be that it will help modernise the retail sector and control food inflation, a big problem at the moment,” said Kumar.

Talking to IANS, Assocham secretary general D.S. Rawat said the move would send a positive signal not only to foreign investors but also domestic investors who were worried that the government was suffering from a policy paralysis.

“Business confidence is low. No major decision were taken in the last few months. This will send a positive signal to investors in all segments,” Rawat said.

Rawat, however, said the government should act swiftly to take a final decision and implement the proposal. “This is just a first step. It has to pass many hurdles,” he said.

The committee of secretaries has sent its recommendation to the cabinet. Now the Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh would take the final decision on the matter.

The decision is not going to be easy as most opposition parties, including the Bharatiya Janata Party (BJP), have been opposing the move saying the entry of multinationals would put the small retailers out of business.

However, analysts argue that given the size of the Indian market there is enough space for small retailers as well as big supermarkets to flourish side by side.

“Business models of supermarkets and small retailers are different. I don’t think supermarkets are a threat to mom-n-pop stores,” Gaurav Gupta, a director at Deloitte in India, told IANS.

Gupta said the minimum FDI cap of $100 million as suggested by the committee of secretaries would provide sufficient safeguard to small retailers.

The committee of secretaries has also recommended that at least half of the foreign investment in any project should be invested in back-end infrastructure like cold storage chains and warehouses.

“This will significantly reduce the wastage and modernise the logistics and supply chain,” the Deloitte official said.

India currently allows up to 51 percent foreign direct investments in single-brand retail and 100 percent foreign direct investment in cash and carry wholesale trade. No overseas investment is allowed in multi-brand retail.

Global retailers like Wal-Mart and Carrefour have already opened cash and carry stores through strategic partnerships in India and are keen to open the supermarkets in the country where only 4 percent retail business is in the organised sector.

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