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FDI in Retail Finally Becomes a Reality - Hopefully

Posted: Monday, 17 September 2012 15:03

FDI in Retail Finally Becomes a Reality - Hopefully

September 17 : After months of dithering over its earlier announcement of foreign direct investment (FDI) in Retail, the government finally announced on Friday the decision to implement the policy allowing 51 percent FDI in multi-brand retail despite protests by the allies and threats of withdrawal from the coalition government, thus paving the way for giants like Wal-mart, Carrefour and Tesco to enter the highly lucrative Indian market unless it rolls back once again under political pressure.

Front-end retail stores will be allowed to open, subject to the approval of individual states and in cities with a minimum population of one million, requiring a minimum investment of $100 million, half of which needs to be used in creating warehousing and storage infrastructure.

The announcement is a part of the government strategy to shed the image of being paralysed and is a part of the reforms that had been announced in the recent years but had taken a back seat. The decision to allow 51% foreign ownership in multi-brand retail was announced in December last year, but was kept on the back burner following widespread opposition from the allies and opposition parties.

The retails giants like Wal-Mart who are already present in India under the wholesale policy for back-end operations, were vocal lobbyists for the implementation and are likely to enter the retail soon even though only 9 states including Andhra and Maharashtra have given their consent to the new policy.

Several Congress chief ministers welcomed the move. But the West Bengal Chief Minister Mamata Banerjee, who is also the Chief of Trinamool Congress, ruling UPA's second largest ally, set a 72-hour deadline to roll back the decision on retail. She has threatened to withdraw ministers from UPA but continue outside support over the go-ahead to FDI in multi-brand retail, a media report said on Sunday. The threat of taking hard decisions follows her meeting with representatives of trader organizations at her state secretariat and urging them to join her fight against FDI multi-brand retail.

Reacting to her opposition, Mr Anand Sharma, Minister of Commerce and industry, who has been the chief architect of the policy and a big supporter in recent times, reportedly said: "We respect Mamata Banerjee's position. It's her prerogative to implement the policy or not. It is equally our prerogative to implement it in other states which are keen on it," adding, "Let us not confuse consensus with unanimity. For unanimity we will have to wait an eternity. This has consensus”.

'We have chosen an India-specific model unlike in China, Thailand and the other BRICS countries like Brazil, Russia and South Africa where the foreign investments in Retail have  been very successful for their economic growth,’ asserts Sharma.  Besides the norms of minimum investment, limited percentage ownership, the population of the cities and State’s final authority to decide, the minimum purchase clause of  30% from SMEs is going to benefit the small and medium sector, besides helping the farmers in their reduced post harvest wastage, better revenues  and boosting employment for their kin, according to the minister.

Sharma also criticizes the opposition by the BJP which had ‘prepared a cabinet note for permitting 100% FDI without any condition when they were in power. Respecting the political ideologies of states like W. Bengal, he emphasized that they were free not to allow these foreign retailers to set up base in their states. However, Sharma is quite optimistic that after seeing the benefits, other states will follow suit.

Kishore Biyani, Chairman of the Future Group, owning several retails chains has welcomed the move. "We are hoping this time the government will stick to its decision because that is absolutely essential," he said. "The decision to let individual states decide on whether they want it is a good decision. This should satisfy people who are opposing it. The industry is convinced once a few states implement it the others will see the benefits and definitely consider it as well," he added.

The decision will significantly help the wine retail market in India. The chains are notorious for squeezing the lesser known brands to the extent of barely allowing them to breathe, though. In a recent trip to Portugal, I was told about a wine producer who had been supplying to one of these chains but fed up with their antics, reportedly advertised in a newspaper that he was stopping all supplies to the supermarkets as the loss due to their squeezing tactics made him lose so much money that he might soon have to commit suicide. Although not the best way to campaign against their ‘brutality’, most producers agreed that these chains are ruthless in their policies which are aimed solely to improve their bottom lines. Unable to sustain growth in their home countries they are on the lookout for newer markets. With a population of 1.2 billion, their eyes are focused on the highly lucrative Indian market.

In any case, their presence would be a positive factor in the wine consumption provided the distribution laws are liberal and are liberalised further-including offering incentives and deals to the buyers. Sooner or later these giants would be pounding at the doors of the excise offices (of each state) to frame policies that are liberal and transparent enough for the consumers to buy more wine and thus help excise offices to net more revenues. However, it may be too soon for the producers and the importers to open a magnum of champagne.

Subhash Arora


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