Now, more FDI in retail, pension funds

NEW DELHI: Having successfully liberalised the foreign direct investment (FDI) regime in telecom and civil aviation, the government has now set its sights on retail and pension funds.

While FDI in retail has been a ticklish issue, which may lead to some resistance, top level government sources feel that allowing foreign investment in management of pension funds may not be difficult. The government may come out with an announcement in the ’05 Budget on opening up of the two sectors for FDI, the sources said.

While commerce and industry minister Kamal Nath is bullish on the employment-generation impact in allowing FDI in branded retail, the ministry of consumer affairs is working on a draft Cabinet note to allow FDI in all segments of retail, including food and grocery business.

Such FDI, officials feel, will allow domestic companies to go in for joint ventures using the vast possibility of sourcing from local manufacturers. For example, they feel, global leaders like Wal-Mart will source more from India once they start tapping the Indian market.

Officials feel the current bar on FDI does not anyway substantially block major global players who are exploiting the loopholes in the rules to set up base here. Through various routes like test marketing, seed marketing and chain marketing and cash & carry routes, multinationals have been tapping the domestic retail market.

Arguments are also being marshalled to explain that opening up of FDI in retail will not hurt small retailers.

The opening up of the pension sector will be more on the lines of insurance, the sources said. It may be necessary to have a local partner and 100% FDI may not be permitted as discussed initially, they added. The finance ministry had initially felt that 100% FDI can be allowed in this segment.

The government has already set up a regulatory body — Pension Funds Regulatory & Development Authority (PFRD) — for the pension sector on the lines of IRDA. The authority is expected to finalise appointment of pension fund managers by the end of the year.
In the case of retail, the government may initially allow only 26% FDI, the sources said. However, there is urgency attached to opening up of this sector as all World Trade Organisation (WTO) members have been asked to come up with liberal offers in the services sector.

The deadline for submission of improved offers to WTO is May ’05. India is the only country among the major developing countries that does not allow FDI in retail.

The consumer affairs ministry is also expected to receive the final report of ICRIER on FDI in retail very soon. The report may provide inputs for some safeguards to small retailers to soothe political sensitivities, it is felt.