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"This was a major step towards providing liberation to the farmers from middlemen and ensuring remunerative price for their produce. This step will help in not only attracting huge investment, but also creating jobs in the agro and food processing industries and bring FDI to build the much needed infrastructure in rural India."
Anand Sharma
Union Minister for Commerce and Industry |
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In November 2011, the Union Ministry of Finance gave its concurrence to the draft Cabinet note of the DIPP on allowing FDI in the multi-brand retail sector in India. A final Cabinet note in this regard is expected soon. The note was in line with the recommendations of the high level committee of secretaries (CoS). The CoS had recommended 51 per cent FDI in the sector with several riders. These included a minimum foreign investment of $100 million (approx Rs. 520 crore). Besides, the government may hike the ceiling of FDI in single-brand retail. At present, the country allows 51 per cent FDI in single brand retail, 100 per cent in cash and carry (wholesale) business, but bars it completely in multi-brand retail.
However, the decision has resulted in various political parties forging a common front, and threatening to paralyse Parliament till the government reviews the norms. The decision on FDI in the sector has been delayed in view of concerns that it will adversely affect small kirana shops. On the other hand, several global chains like Walmart and Tesco plc are hoping for a policy revival, which may pave their entry into India's multi-brand retail segment.
As there are mixed reviews in regards to opening of multibrand retail sector in the country, the latest available data from the Reserve Bank of India shows a 77 per cent jump in the FDI in the first half of the current financial year (April-September 2011), as against $19.5 billion (approx Rs. 1,01,400 crore) of the same period, a year ago. As per the industry analysts, this is due to some of the big ticket mergers and acquisitions transactions like BP's $7.2 billion (approx Rs. 37,440 crore) stake acquisition of Reliance Industries' oil and gas properties or Vodafone buying out Essar from their JV for over $5 billion (approx Rs. 26,000 crore). Further, during the month, the ministry, on the recommendations of the FIPB, approved 18 FDI proposals, including that of Dish TV and MCX, envisaging foreign investment of Rs. 2,126 crore. The government cleared Dish TV India's Rs. 980 crore proposal to raise foreign equity to produce telecom equipment and marketing of mobile satellite communications. Other than this, the proposal of Mauritius based Ventureast Life Fund III LLC seeking induction of foreign equity worth Rs. 950 crore in a trust has also been given a go-ahead. However, decision on 16 proposals, including that of Religare Capital Markets and Cordia International Corp, USA, was deferred and 11 were rejected.
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Wal-Mart, Tesco in wait and watch mode to enter Indian multi-brand retail
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After much delay, on 24 November 2011, Union Government of India announced that it will allow overseas companies to invest up to 51 per cent in multi-brand retail stores. The companies like Wal- Mart and Tesco have waited almost for seven years for the decision to come. (Note: In 2006, the government allowed up to 51 per cent for single-brand retail shops such as upmarket luxury brands. Wal-Mart has already teamed up with Bharti Enterprises, while Tesco
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went with the Tata Group for wholesale cash-and-carry stores that could provide Bharti and Tata shops with supplies. Currently, Wal- Mart has 14 wholesale outlets through its JV with Bharti, Germany's Metro owns six and France's Carrefour has recently announced the opening of its second wholesale store. Wal-Mart has plans to aggressively expand its India operations, Scott Price, CEO for Asia, said in March 2011. However, the companies like Wal-Mart and
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Tesco have currently refused to comment on their multi-brand retails plans in India, due to ongoing political crisis in the country. Over the last couple of days, Wal-Mart's cash-and-carry stores in Lucknow and Kota have had to face disruptions and closure intermittently, due to protest against the government policy on FDI in retail. On the other hand, Carrefour is not ready to talk on any issues related to its entry into multi-brand in India till uncertainties end. This apart, Scandinavian home products giant IKEA, has also set its eyes on the lucrative Indian retail market. However, their investment plan has not yet been disclosed.
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