Cabinet secretary favours FDI in retail

NEW DELHI: The country’s highest-ranking bureaucrat has favoured foreign direct investment ( FDI) in multi-brand retail saying it will help tame soaring food prices.

Cabinet Secretary KM Chandrasekhar made the suggestion in a presentation to Prime Minister Manmohan Singh and his senior cabinet colleagues in Delhi on Tuesday.

“As a medium to long-term measure to improve distribution, foreign direct investment in multi-trade retail be allowed,” Chandrasekhar said in his presentation on inflation and the possible measures that could rein it in.
India currently allows 51% FDI in single-brand retail and 100% in wholesale cash-and-carry.

The cabinet secretary’s suggestion has come at a time when rising food prices have become a headache for the government. Although, food inflation for the week to January 1 eased marginally to 16.91%, it remains far beyond the government’s comfort zone.

Chandrasekhar also suggested that states should be given a free hand to take a call on allowing FDI in multibrand retail if the centre itself was not willing to take a decision right now.

The cabinet secretary said the sector could be opened up with a minimum investment of 500 crore, 50% of which should be in the back-end infrastructure, such as cold chain and logistics.

According to industry estimates, the lack of back-end infrastructure results in the wastage of about 40% of farm produce , worth 50,000 crore, every year.

“It is expected that foreign retailers would bring in adequate capital, global best practices, new technology and processes leading to an improvement in the distribution system,” said Akash Gupt, Partner, PwC.

Proposal under study

Analysts say Chandrasekhar’s suggestion has added weight to a proposal already under consideration of the government on liberalising multibrand retail.

The department of industrial policy and promotion, which administers the country’s FDI policy, had in a discussion paper released in July last year sought suggestions on opening up the sector to foreign investment.

There was a view within the department to keep the FDI limit at 51%, but the paper did not suggest any cap. It later appointed a panel, chaired by additional secretary in the consumer affairs ministry, to examine responses to the paper. This panel recently called for wider consultations on the issue.

Liberalisation of multibrand retail, which employs millions in the country, also faces stiff political opposition from the Bharatiya Janata Party and the Left parties.

A parliamentary standing committee, headed by BJP leader Murli Manohar Joshi, had recommended a blanket ban on FDI in retail. However, the United Progressive Alliance government, sans the Left, seems more open to the idea of allowing FDI in the sector.