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FDI in multi-brand retail, food first

business Updated: Jul 02, 2009 23:02 IST
Manoj Gairola
Manoj Gairola
Hindustan Times
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The annual Economic Survey tabled in Parliament on Thursday suggests that the government should allow foreign direct investment (FDI) in multi-brand retail, while seeking an increase in the limits on FDI in sectors like insurance and defence.

All these are considered politically sensitive with Left parties strongly opposed to the further opening up of these sectors.

The survey says that a beginning in allowing FDI in multi-format retail could be made with food retail. It said the investment required for back-end logistics and supply chain is the highest in food compared to other areas, where the supply chain exists in some shape and form.

“Initially this could be subject to setting up a modern logistics system, perhaps jointly with other organised retailers. A condition could also be put that it must have (say, for 5 years) wholesale outlets where small, unorganised retailers can also purchase items (to facilitate transactions),” the survey said.

“This would be good news for large foreign retailers who have entered India with the cash & carry model and plan to get into retail. It also means opening of funding avenues for local retailers,” said Pinakiranjan Mishra, Partner & Industry Leader, Retail & Consumer Product Practice, at consulting firm Ernst & Young.

The current regime permits 51 per cent FDI in single brand stores. In the wholesale cash & carry model 100 per cent FDI model is permitted. However, no FDI is permitted in multi-brand retail – which would cover stores like Walmart -- following strong opposition from Left political parties and small shopkeepers.

In the case of insurance, the survey suggests that the FDI limit be raised to 49 per cent from the current 26 per cent. It also wants 100 per cent foreign equity in special category insurance companies that provide all types of insurance (such as health and weather) to rural residents. This would be for all agriculture-related activities including agro processing. “This may help dispel fears of foreign equity in insurance,” the survey noted.

In defence production, the Survey wants the FDI limit should be raised to 49 per cent from 26 per cent. It wants 100 per cent FDI allowed in high technology, strategic defence goods, services and systems that can eliminate import dependence.