Close on the heels of a partial deregulation in fuel prices, the government on Tuesday made another move to push through a key reform, releasing a discussion paper inviting views of various stakeholders on opening up the retail sector.
It invited comments on allowing foreign investment into multi-brand retail and indicated that such a move would help farmers earn more and keep prices under control.
"FDI (foreign direct investment) in retail may be an efficient means of addressing the concerns of farmers and consumers," said the discussion paper floated by the department of industrial policy and promotion (DIPP).
Currently no FDI is allowed in multi-brand retail, while the cap is 51 percent for single-brand retail. There is no cap on foreign investment in cash-and-carry wholesale trading.
Building its case for opening up of the sector, the DIPP, which is under the ministry of commerce and industry, said there was no such indication that opening up of the sector would lead to a wipe-out of small retailers or kirana stores as they are popularly known.
It also said that in most countries where FDI in retail was allowed, total employment in the sector and the number of new small retail stores grew.
These have been among the major sticky areas in opening up of the sector and over which opposition parties had created a huge hue and cry in the past.
The DIPP said the impact of domestic organised retail chains on the unorganised sector had not been much, with the latter continuing to grow at a steady pace.
As per government records, the rate of growth of private organised sector decelerated from 27 per cent in 2005-06 to 15 per cent in 2008-09, while the rate of growth of the private unorganized retail sector remained more or less stable, from 15.6 per cent in 2005-06 to 14.9 per cent in 2008-09.
The paper said India was losing about Rs.1 lakh crore in wasted agricultural goods, fruits and vegetables annually, and the private foreign players could be instrumental in setting up the necessary cold chain systems the country has been lacking.
"Keeping in view the large requirement of funds for back-end infrastructure, there is a case for opening up of the retail sector to foreign investment," it said.
The DIPP said that since FDI was allowed in single brand retail, the total investments received between April 2006 and March 2010 were estimated at $194.69 million (Rs 901.64 crore), comprising 0.21 per cent of the total FDI inflows during the period.
In the cash and carry wholesale trading, the country saw between April 2000 to March 2010, inflows of $1.78 billion (Rs 7,799 crore).
Prime Minister Manmohan Singh had earlier this year sought a debate on opening up the sector referring to the vast difference between farm gate and on-shelf prices.
The paper said a number of issues needed to be resolved before any such move, including whether any new legislation would be needed or if a regulator needs to be constituted, protecting the public distribution system by ensuring that enough buffer stocks are maintained by the government.
The paper seeks public comment on empowering a federal agency to regulate foreign retailers. It also explores the possibilities of requiring foreign retail stores to reserve 50 per cent of jobs for rural youth and limiting stores run by these retailers to towns with a population of more than one million.
If this proposal is accepted and the reform goes through, it could provide a big opportunity to multinational retailers like Wal-Mart, Tesco, Carrefour and Woolsworth to enter the Indian market.