FDI for multi-brand retailing gets past cabinet

Posted on    25 November 2011

You will soon be able to walk into a mega deep discount store run by global retailers such as Walmart, Tesco and Carrefour in your neighbourhood.

Brushing aside political resistance from allies Trinamool Congress and DMK as well as some Congress ministers and stiff opposition from the BJP and the Left, the union cabinet - at a two-hour meeting chaired by Prime Minister Manmohan Singh - on Thursday allowed 51% foreign direct investment (FDI) in multi-brand retail as well as 100% FDI in single brand retail.

The cabinet also cleared the new companies bill that is aimed at overhauling corporate governance norms.

The FDI clearance comes with several caveats to address fears of small traders that giant global chains will drive them out of business and throw millions out of jobs. Foreign chains like Walmart already have a presence in India in the cash and carry (wholesale) sector.

HT had reported on November 18 that the government was likely to clear FDI in mutli-brand retail, among other measures, to counter perceptions of political drift and policy paralysis.

The Congress also possibly sees this as signal to the urban middle classes who will be the main beneficiaries of an expansion of organised retail. This class has turned hostile to the government on the issue of graft and prices.

"This is a bold and significant move. It will redefine India's supply chain infrastructure and bring down prices," said Raj Jain, Walmart India managing director and CEO.

"The consumer will gain from lower prices," said Kishore Biyani, founder and group CEO of Future Group that runs Big Bazaar and other stores.

"The farmers will gain as retailers will offer them higher prices for their produce. Small entrepreneurs will benefit as 30% of all products will have to be sourced from them," added Biyani

However, Praveen Khandelwal, secretary general, Confederation of All India Traders was unhappy: "It will cause great harm to small traders and will also adversely affect others depending upon the retail trade for their livelihood," he said.

According estimates of consulting firm Technopak Advisers, large domestic and foreign retailers are planning investments of $35 billion (about Rs 1.75 lakh crore) over the next five years. This will trigger massive economic activity and generate millions of jobs.

Earlier in the day, commerce and industry minister Anand Sharma met railway minister and Trinamool Congress leader Dinesh Trivedi in the Rajya Sabha to try and bring his party around.

Later in the day, he was seen discussing the issue with West Bengal chief minister Mamata Banerjee at a promotional event at Pragati Maidan.

However, after the Cabinet meeting, Trivedi said he had opposed the move.

"But I was overruled," he added.

Finance minister Pranab Mukherjee reportedly told him: "If you don't want FDI in West Bengal, it's fine, but you can't prevent other states from getting it."

The BJP and the Left immediately threatened to oppose the government move.

"Foreign investors with deep pockets entering this segment will have an adverse impact on our growing domestic retail sector," Leader of Opposition in Rajya Sabha Arun Jaitley said.

Sitaram Yechury of the CPM said, FDI was acceptable only if it fulfilled three conditions: "generating employment, enhancing capacities and bringing new technologies."

HT has learnt that defence minister AK Antony, rural development minister Jairam Ramesh and small enterprises minister Virbhadra Singh also raised some concerns about allowing FDI in retail.


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