IndiaRetailBiz

All retailers, including those who were initially reluctant to allow rush of foreign capital in the sector, have been asking for full opening retail sector to foreign investment in India.

The main reasons for such an unequivocal demand stems from the realisation that (a) while retail requires heavy investment for expansion, there is hardly any local capital left in the capital markets as a consequence of global financial meltdown, and (b) efficient management of multi-brand, multi-product, multi location retail, especially in the area of back-end operations, require heavy dose of technology, which over the years has been developed and perfected by foreign players.

Although, foreign investment (FDI) in India is fully admissible in ‘cash and carry’ wholesale (back-end retail), it is admissible only up to 51 per cent in single-brand front-end retail. Importantly, there is a complete ban on foreign investment in multi-brand, front-end retail. THis has resulted in keeping all the big ticket retailers of the world like Walmart (USA), Carrefour (France), Tesco (UK), and Metro (Germany), who are very keen to foray into India’s retail sector, away from entering into the country. All of these retailers, therefore, to make their presence felt  in the country, have either tied-up or trying to tie-up with local corporates, to offer their services for back-end operations like sourcing, logistics, inventory management, among others, for front-end, multi-brand retail operations of such corporates.

The present UPA government’s thinking, as reflected in The Economic Survey 2008-09 tabled today in the Parliament, raises hopes of all those who are looking for a favourable response of the government on the subject. While, the Economic Survey has made a strong case for opening up the FDI for multi-brand retail, it has recommended a gradual opening of the sector.

Improving the investment environment would require “FDI in multi-format retail, starting with food retailing,” said the Survey, adding that initially the FDI could be allowed subject to the setting up a modern logistics system, perhaps jointly with other organised retailers. “A condition could could also be put that it must have (for five years say) wholesale outlets where small, unorganised retailers can also purchase items (to facilitate transition),” added the Survey.

It may be interesting to note that the present recommendations come in the backdrop of recent tabling of a report on retail in the parliament. The report on retail was prepared by a 40-members committee headed by ex-HRD minister and senior BJP leader Murli Manohar Joshi. The report has recommended a ‘blanket ban’ on entry of ‘big’ corporates in the retail sector as well as stoppage of issuance of ‘free’ licences to foreign retailers even for ‘cash & carry’ business operations.

Although, the government this time has not to battle ideological battle on the subject with the ‘Left’ parties, whose support earlier was crititical to the survival of the previous UPA government, it should not be forgotten that even today, two of the largest allies in the present government, (Trinamool Congress and DMK) are fiercely opposed to the opening of the retail sector to the foreigners. It may be worthwhile to recall that firebrand Mamta Mukherjee-led Trinamool Congress was alleged to have vandalised the under-construction shops of Reliance Fresh, prior to celebration of Durga Pooja festival in Kolkata