Finance minister Pranab Mukherjee on Monday signalled the government’s intent to further liberalise norms to attract foreign capital in key sectors triggering speculation about possible opening politically sensitive sectors such as retail.
“Discussions are underway to further liberalise the foreign direct investment (FDI) policy,” Mukherjee said in his budget speech. FDI into India during April-December this fiscal declined by 23% to $16 billion from $20.8 billion in the same period last year.
The debate on allowing FDI in multi-brand retail has gathered steam in recent months.
A group of secretaries of the departments of industrial policy and promotion (DIPP), food and public distribution, food processing industries and the Planning Commission is currently working on specific schemes to encourage investment in supply chains and cold storages, which will be dovetailed with organised retail chains.
These are aimed at more efficient distribution of farm products and minimising wastage.
At present, FDI in multi-brand retail is prohibited in India but the government allows 51 % FDI in single brand retailing and 100% in wholesale trade.
The debate over allowing FDI in multi-brand retail has gathered steam in recent weeks with many within the government of the view FDI in multi-brand retail saying will help rein in surging food prices.
Last month, cabinet secretary KM Chandrasekhar, the country’s topmost bureaucrat, suggested in a presentation to cabinet ministers that FDI in multi-brand retail should be allowed as a medium to long-term measure to improve distribution.
Domestic traders lobby groups and the Left-wing political parties have expressed concern that transnational giants offering deep discount sales in mega stores would put the livelihood of neighbourhood mom-and-pop stores and street vendors at risk.
DIPP had floated a discussion paper in July making a strong pitch for throwing open the retail sector to FDI that would allow international giants such as Wal-Mart, Tesco and Carrefour to set up mega stores in one of the world’s hottest growth economies.
Research inputs by Deloitte