Cabinet to consider 51 p.c. FDI in multi-brand retail

With the recent uproar on rising food and vegetables prices providing a handy trigger, the Manmohan Singh Government is all set to give its approval to 51 per cent Foreign Direct Investment (FDI) in the multi-brand retail sector with the Commerce and Industry Ministry likely to move a Cabinet note next week.

Highly placed sources in the Ministry said the move to open up the multi-brand retail sector, a politically sensitive issue, comes following “feedback” received from State governments which have argued that allowing foreign investment in retail would improve the required infrastructure and provide a remunerative price to farmers for their produce.

What has also emboldened the Centre is that the Narendra Modi Government in Gujarat and the Akali-BJP alliance Government in Punjab are in favour of opening up the sector despite the BJP's opposition to this policy at the national level.

“We have firmed up our views on the issue and are likely to move a Cabinet note later this week or early next week proposing allowing of 51 per cent FDI in multi-brand retail,” a senior official explained to The Hindu. “The note will be sent to various Ministries for their comments and then the Cabinet Committee on Economic Affairs will be moved for a policy decision. We are hoping the matter will form part of the budget announcements as the Finance Ministry as well as the Agriculture and Food Distribution and Consumers Affairs Ministries are strongly backing such a move.”

The Government is proposing some safeguards to ensure that non-serious players and fly-by-night operators are not entertained. To this end, any player who seeks entry into the Indian market will be required to invest a minimum of Rs. 500 crore. The Government is also seeking certain other investment commitments, including establishing backend cold chain outlets.

Concept paper

Last year, Prime Minister Manmohan Singh sought a debate on opening up the sector, pointing to the vast difference between farmgate and consumer prices. The Department of Industrial Policy and Promotion, under the Ministry of Commerce and Industry, floated a concept paper inviting comments from various stakeholders on allowing FDI in multi-brand retail.

Later, a committee was constituted under the Ministry of Consumer Affairs and Public Distribution, which has prepared a draft report after taking into consideration the concerns and viewpoints of all stakeholders concerned, officials said.

Though 100 per cent FDI is permitted in cold chain through the automatic route in the absence of FDI in retail, the flow of such funds to the sector has been insignificant. The present FDI regime allows 51 per cent foreign investment in single brand retail and 100 per cent in wholesale cash and carry.

The Ministry of Consumer Affairs and Public Distribution initially suggested a cap of 49 per cent FDI in multi-brand retail, while the Micro, Small and Medium Enterprises Ministry's recommendation is for 18 per cent FDI. But the recent skyrocketing of food prices — especially those of onions — and the declining inflow of FDI have opened a door for the Government to take a more ambitious decision on the prickly issue.