51% FDI in multi-brand retail approved; Attract controversies too

Posted By: Religare
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51% FDI in multi-brand retail approved
Amid huge controversies and varied suggestions, the Union cabinet on November 24, 2011, freed up overseas investment norms for the retail sector, thus putting an end to the two-year long pending issue that has been welcomed by many, while equally protested by some.

The development has now liberalized retail norms including 100 per cent foreign direct investment, or FDI, in single-brand retail, and 51 per cent in multi-brand retail with some restrictions. Currently, 51 per cent FDI is allowed only in single-brand retail, and 100 per cent in the cash and carry, or wholesale, segment.

Prime Minister Manmohan Singh's United Progressive Alliance (UPA) government has moved the step with the liberalization while facing the resistance from opposition parties, as it seeks to tackle inflation on the one hand and needs overseas investment to create jobs and boost the economy, which has been slowing amid global uncertainty, on the other.

However, individual states will have the liberty to decide whether they want to allow multi-brand retail chains with foreign partners to be located in their territory.

Favouring the reform, the cabinet believed that foreign players in the sector would make the system more efficient, while investing in back-end infrastructure such as cold and supply chains. The proponents also opined that the development would also ensure that farmers would get paid more for their produce and consumers would be paying less.

Chief economic adviser to the finance ministry, Kaushik Basu, has backed the move on the grounds that it would help moderate the high level of food inflation in India.

Chandrajit Banerjee, director general, Confederation of Indian Industry, said that the biggest beneficiary to the development would be the small farmers who will be able to improve their productivity and realization by selling directly to large organized players.

Besides, the opposition was also seen after the move as the Bhartiya Janta Party (BJP) made clear its opposition to the move.

While the Left parties are also opposed to the step stating that “This is a decision which is going to grossly affect the livelihood of crores of people who are working in the retail trade sector," said Brinda Karat, politburo member of Communist Party of India-Marxist (CPM).

Meanwhile the decision will be cheered by global retail giants such as Wal-Mart that have long been eyeing India's lucrative retail sector worth an estimated $450 billion a year.

Dion Global Solutions Ltd

Read more about: fdi, retail, investment, inflation, economy
Story first published: Friday, November 25, 2011, 12:30 [IST]
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