Against all political odds,the government has decided to take up the sensitive issue of foreign direct investment in the retail sector at tomorrows meeting of the union cabinet. If approved,53 cities will be eligible to have state-of-the-art internationally renowned retail outlets. The proposal put forward by the commerce and industry ministry seeks cabinet approval for allowing 51 per cent FDI in multi-brand retail trading and for increasing FDI limit in single-brand retail trading from the current 51 per cent to 100 per cent. This will enable the upgradation of post-harvest,cold chain infrastructure,bring technology and management know-how,benefit consumers in terms of cost and quality and remove structural inefficiences in the supply chain,says the note. While taking on board all the recommendations of the committee of secretaries that examined this issue,the Department of Industrial Policy and Planning (DIPP) has added a fresh condition to protect small and medium scale enterprises in the note. This provision seeks to make it mandatory for investors to source at least 30 per cent of manufactured or processed goods from small industries. These have been defined as industries which have a total investment of not more than $1 million in plant and machinery at the time of installation. This condition has been made mandatory for single-brand retail investors too as part of the move to increase FDI limit to 100 per cent. Compliance with this condition in both cases would be through self-certification of companies,then checked by statutory auditors. This is an outcome of the committees direction to DIPP to come up with provisions to protect the interests of agriculture,food processing,electronics,textile sectors and SMEs. The agriculture ministry had,incidentally,proposed a provision for 60 per cent sourcing from low-income poor farmers. The DIPP,however,turned this down saying it was not feasible to impose this condition as it makes commercial sense for retailers to source fresh produce locally. Further,such a condition may be difficult to implement and monitor, observed the DIPP,making it clear that prescribing local content could potentially violate Indias international commitments. The remaining conditions for multi-brand retail FDI mirror the CoS report: » Minimum amount of FDI by a foreign investor would be $100 million. » At least 50 per cent of total FDI will be invested in back-end infrastructure, which will include investment on processing,manufacturing,distribution,design improvement,quality control,packaging,warehouses,storage,logistics and related infrastructure. » At least 30 per cent procurement of manufactured or processed products shall be sourced from small industries that dont have plant and machinery more than $1 million worth. » Multi-brand retail outlets can sell unbranded fresh agriculture produce,including fruits,vegetables,flowers,grains,pulses,fresh poultry,fishery and meat products » Retail sales locations will be set up in cities with a population of more than 10 lakh according to 2011 census and will cover an area of 10 km around the municipal limits of such cities. » Government will have the first right to procurement of agricultural products. Justifying the proposal,the note states that FDI in multi-brand retail will help generate funds for developing post-harvest and cold chain infrastructure while incentivising international retailers to introduce latest technology and adopt international best practices. The proposal for multi-brand retail trade is likely to benefit consumers across the country according to 2011 census,there are 53 cities with million plus population that accounts for over 42 per cent of the total urban population across the country. On enhancing FDI in single-brand retail,the note states that in the last four years,only 60 proposals have been approved under the existing rule of 51 per cent FDI with an aggregate investment of $137 million. Of this,actual FDI flows have been only $44.45 million. This accounts for just 0.03 per cent of the total FDI inflows. The DIPP has justified increasing FDI limit to 100 percent in single-brand retail trading as no significant break from existing policy where the majority ownership of 51 per cent confers the right to pass ordinary resolutions. It has asserted that the 100 per cent ownership would bring global best practices in management,quality,design,packaging and production to India. It would also incentivise local producers to scale-up their production that would create multiplier effect on employment and income generation.
