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Most retailers say yes to FDI but with conditions applied
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Friday, 03 September, 2010, 08 : 00 AM [IST]
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Our Bureau, Mumbai
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The department of industrial policy and promotion under the commerce ministry has received varied feedback on the discussion paper it floated around a month ago on the proposal of allowing FDI ( Foreign Direct Investment) in multi-brand retail.
Among the respondents, the American Chambers of Commerce in India supported 100% FDI stating that it would make a level playing field for both domestic and foreign players alike.
However, it recognised the importance of a phased change of allowing the first step of 49% FDI.
Another supporter of FDI, the US-India Business Council, however, felt that the idea of stipulating a 50% investment in back-end infrastructure would not be advisable. The Council said, " Investment should, and will, happen because of its commercial necessity on an ongoing basis. Mandating a fixed investment amount may encourage under-investment during initial infrastructure development when a relatively high level of resources are required, and also may encourage a mis-allocation of resources as maintenance of infrastructure is required."
The Council argued that the proposed clause of compulsory investment may dis-incentivise infrastructure investment by suppliers, thus limiting the total investment.
The Kisan Jagriti Manch reacted to the FDI proposal saying a multi-centric broad-based impact assessment study on agriculture sector involving farmers group was a prerequisite for the permission of FDI in multi brand sector especially in the food market.
It said that at the moment there was no urgency to allow FDI in multi-brand retail, instead food security was the prime duty of the government and it should come up with an investment in this sector.
"As the country is comfortable in foreign exchange reserve which was $283.5 billion in Dec 2009 and indigenous technology is available for the creation of storage facilities and the fact that there are no conclusive reports of the impact of FDI on inflation control as well as increase in farmer's profit., there is no urgency for FDI," stated the Manch.
As the prime objective of the FDI was to create back-end infrastructure, the Manch suggested that efforts must be for the maximum investment in the infrastructure in/near the farmers' field and specifically in the pre-aggregation logistics like sorting, grading etc.
Before the implementation of FDI, the Manch asked for the implementation of the recommendation of the Working Group of XI Plan, which asked the government to proactively prepare the farmer groups to interact and establish linkage with retailers.
Second, compulsory provision to mention the price paid to the farmers on the packing of raw/ finished farm produce. The Manch said that it was justified to have reservation for rural youths in the back-end and front end operations and it should be applied with organised domestic retail chain also.
As opposed to the proposed idea of initially allowing foreign investment for retail stores only in cities with population of more than 10 lakhs (2001 census), the Manch said that considering the real-estate difficulties, small cities and outside place should get priority as it would pave the way for their development like road and infrastructure.
On the same clause, however, retail major Bharti-Walmart differed in view. It stated that retail should be permitted in the roughly 200 cities with a population greater than 2 lakh (200,000). This would still protect the kiranas in smaller cities and rural India.
The retail major's support to the FDI in multi-brands was conspicuous. It made a few suggestions like abandoning Shopping Mall Regulation Act and using FDI to enhance the Public Distribution system.
Bharti-Walmart said that if the issue was to encourage more stable capital inflows rather than portfolio investments, then FDI would provide
an appealing solution, as direct investment generally was not "traded" quickly.
It said, " In case a mandate is absolutely necessary, a minimum threshold limit of a $100 mn over five years be fixed for the food category. There should not be any stipulated limit for the non-food category."
On whether a minimum per centage of manufactured products to be sourced from SME sector, Bharti-Walmart said, "More than 50% sourcing should be local in order to develop India's industry. Foreign and domestic retailers engaged in multi-brand retailing should be treated equally in any policy designed to enhance sourcing from the SME sector."
It recommended that front-end retailing stores be accompanied by investments in wholesale and for every square foot of multi-brand retail, retailers should also develop an additional 1/3 square foot in cash-and-carry stores.
Another retail major Carrefour suggested that while making any change or new regulations that foreign retailers would be required to follow, the policy makers in the government should review the existing regulatory framework including all national, state or city rules and regulations, those are required to be followed by the retail store operations and endeavor to simplify and create a uniform legislation across the geography of India with single window licensing programme. That could catalyse the growth of modern trade in the common interest of all potential stakeholders in the retail sector.
Confederation of Indian Industry also gave an affirmative nod for FDI in multi- brand retail. It said, " In order to balance the interests of various stakeholders the initial cap on investment could be pegged at (i) 49% under the automatic route and (ii) 74% under the approval route. In order to ensure that only serious investors are encouraged, we may like to put some restricting conditions around exit (say minimum lock in period as 3 years). These conditions should apply irrespective of whether the foreign investment is being received in the food or the non-food category."
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