IndiaRetailBiz

P. Chidambram, Union Minister of Finance, while speaking to students at Wharton Business School, about ten days ago, had assured that “India will open up its huge retail market to foreign investors. … It is only a matter of time before the policy is tweaked to allow FDI in retail.“

Notwithstanding the above assertion, there will be no FDI in retail, at least for now as the union Minister of Commerce and Industry, Kamal Nath, has ruled out extension of FDI in retail. “There is no plan for FDI in this sector as of now,” he said, while talking to reporters in the capital.

And, as elections appear to be round the corner, this contentious issue is likely to be quietly buried until new political dispensation comes to power and takes a fresh view in the matter.

FDI in retail here refers to FDI in multi brand, front-end retail, since under the existing trade policy, FDI in retail is allowed in single brand retail (up to 51%) and cash & carry retail (up to 100%).

Explaining the reasons for this decision, Kamalnath said, ”A study on retail in underway and report is still awaited. We have no plans for FDI in retail.” The ministry has appointed ICRIER to submit a report among others on the impact of entry of BIG business and MNCs in retail, following a missive of UPA chair person Sonia Gandhi to the Prime Minister Manmohan Singh, on the livelihood security of small traders. ICRIER is expected to submit its report within a month.

Talking to reporters, he also justified the move saying, “mom and pop (kirana) stores are the country’s backbone and it is necessary to focus on them.”

Earlier, Kamal Nath had left it to the wisdom of state governments to take a decision in the interest of the nations as regards entry of big corporates in their states in retail.

The delay in allowing FDI in multi brand would mean that MNC retail giants like Tesco of U.K. and Carrefour of France, who have been waiting in wings to enter the country, will have to put their plans on hold unless they, like the world’s biggest retailer Wal-Mart and Germany’s Metro AG, decide to enter the country through cash and carry route.

While, Metro AG, for over three years, is already present in the country with a wholly owned subsidiary which currently operates three distribution centres, Shoprite of South Africa is also present in this space with a single outlet in Mumbai. Wal-Mart has, however, decided to join hands in a 50:50 partnership with telecom giant Bharti Enterprises. Those opposed to the entry of MNC retailers in the sector, have dubbed the ‘cash and carry’ arrangement between the two giants as surreptitious.