Finally, FDI in multi-brand retail will be a reality! The Government took a giant step in July 2011 towards opening this sector with the Committee of Secretaries (CoS) giving an in-principle nod to allow FDI up to 51 per cent. This has been on the cards for some time now, but the Government has hesitated so far on opening up the sector to foreign players apprehending a negative impact to the very sustenance of local mom-and-pop stores. Research and studies done by various forums also yielded different results - some suggesting no negative impact on local kirana shops, while some suggesting that kirana shop owners will lose their livelihood.

Taking a cautious route, the Government has opened this sector in a calibrated manner - first allowing foreign retail players to set up wholesale cash-and-carry stores in India. Next, the Government allowed specialised foreign brand owners to set up retail shops in India by forming joint ventures with Indian partners through the single brand retail window. Foreign investors are permitted to own 51 per cent stake in such JV companies, with the idea to allow Indian consumers access to global luxury brands. And now, through its current proposition, the Government is intending to open the multibrand retail space to foreign players.

It started with the discussion paper issued last year, took many rounds of dialogue with stakeholders, an Inter-Ministerial and State Government consultation process and representations from other country heads, before the CoS finally recommended opening this sector. Being a politically sensitive subject, it has not been easy, with oppositions from various quarters. Then, what is the driver for this liberalisation? High food inflation? Quite possible. As per the latest estimates released by the Government for week ended 23 July, food inflation stands at 8.04 per cent and the target is to get it down. Even the Inter- Ministerial Group on inflation had strongly advocated liberalising this sector so that back end logistics and farm to fork supply chain can be made more efficient and stronger.

Considering this, it is expected that even the proposed policy is likely to recommend minimum level of capital investment to be made in developing back end supply chain and the related infrastructure. What this would entail is - setting up cold chain storage facilities, developing efficient transportation system for farm produce to reach customers etc. An incentivising framework has already been put in place by the Government - foreign currency loans are permitted, 100 per cent tax deduction is available and concessional customs duty with full service tax exemption persists for setting up and expansion of cold storage facilities.

Does the proposal bring benefits for all? It does. One of the most significant beneficiaries will be the consumer. Once FDI is allowed, it will provide consumers with more choice, for both products as well as retail chains apart from getting the products at best prices. The Government exchequer stands to gain as the share of organised segment in retail trade will increase. The farmers/growers will have an advantageous and an efficient supply chain available to them, with an assured market platform and a market for their produce. Bleeding Indian players will get access to foreign funds; there could be possibilities of strategic tie-ups and strategic investments. The country's macroeconomics is also expected to gain with increased FDI flows as well as creation of millions of jobs across the country - both at retail store levels and in back-end linkages. But, to what extent will the benefits materialise? I guess only time will tell. A lot depends on the requirements that would be outlined in the final policy document once announced by the Government. Stakeholders will do their viability checks then, and announce their plans accordingly. Global retailers and brands recognise that the next phase of their growth will come from India-heightened revenues, greater profits, etc. Strong macroeconomic fundamentals and India's demographic dividends (e.g. 350million strong middle class, large young population where 50 per cent are under 25 years, 13 million joining the workforce each year, etc.) support the growth of India's retail sector. A policy framework empowering this is, thus, a must and long overdue. With Union Cabinet expected to favourably take up the policy recommendation, we are definitely headed in the right direction.