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FDI in Retail still a Dream

Posted: Wednesday, 02 February 2011 11:09

FDI in Retail still a Dream

Despite a lot of hype and rhetoric built around the possible opening of Foreign Direct Investment in Retail, with both sides presenting their case convincingly at the World Economic Forum in Davos last week, FDI  still remains a distant dream for the global retail chains who find the Indian market still very lucrative despite a couple of patchy years due to recession in India. 

‘Foreign direct investment (FDI) in front-end retail will have to wait’, says Sunil Mittal, CEO of Bharti Enterprises. He said, ‘Let us see for the next 7-10 years what Indian companies deliver and then we can take a call.’

This statement was not made in Davos but in Kolkata in September  2007 at the national council meeting of the CII of which Mittal was then the President. Bharti had just signed an agreement with Wal-Mart at that time. The report was carried by delWine at: http://www.indianwineacademy.com/dm_163_item_1.asp

Not much seems to have changed since the time Mittal made the above statement. Echoing similar sentiments, the Indian Commerce and Industry Minister Anand Sharma told Wal-Mart CEO Mike Duke and Tesco CEO Terry Leahy in Davos last week at the World Economic Forum that global retail chains like Wal-Mart and Tesco should focus only on the back -end infrastructure even though the issue of opening multi-brand retail for FDI was under ‘active’ consideration by the government.

Stressing his point further, Sharma added, ‘Multi brand can come only when the back-end infrastructure is created; that’s where the farmer will get the remunerative prices at the door step,’ telling reporters that one could not say that one would have a front end in the absence of a back-end infrastructure.

On the other hand, a day earlier, Doug McMillon, President and CEO of Wal-Mart opined that allowing foreign direct investment (FDI) in multi-brand retail would not impact the fortunes of small kirana shop-owners, a contentious issue since the seed of  FDI for Retail was sown in the mind of Indian economic planners.

Justifying FDI for Retail at a panel discussion last Thursday, McMillon reportedly said, ‘I can give you the example of Mexico where we entered in 1991. Even today, after 20 years, 50 % of retail is done informally in the unorganized sector.’ He added that fears of large MNC retail chains forcing the kirana stores to close down are overstated.

On a snubbing note, the CEOs of Wal-Mart and Tesco were told by Anand Sharma,"I am not in the business of discussing domestic policy on foreign soil." 

 India currently permits 51 %  FDI in single-brand retail (like Nike, Adidas, GAP and Armani) and 100 % in the case of cash-and-carry outlets like Metro and recently Carrefour, that may sell only to other retailers and businesses like kirana stores and restaurants and the sale to  individuals is limited.

Though the government might be convinced enough to open the multi-brand business for FDI, the political compulsion due to the possible backlash from domestic kirana stores, supported by political parties like BJP prevent it from taking the final step. Planning Commission deputy chairman Montek Singh Ahluwalia, who is also in favour of 100 per cent FDI in multi-brand retailing, told the Forum at Davos that this was a contentious issue in India and would have to be debated thoroughly before the government could take a decision.

From Mittal to Montek, it has been almost two and half years and both sides seem to be holding fort. But in a country where the government could not dare name a National Wine Board as such for fears of backlash, would not, in all likelihood, dare face the immediate wrath of the multitudes of kirana store owners with political support from the opposition parties, no matter how much sense it makes to allow front-end operations with FDI, as the Wal-Marts and Tescos of the world would like for us to see.  

       

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