FDI in retail: Whom are you kidding, Mr PM?

Devinder Sharma

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.


Prime Minister Manmohan Singh projects FDI in retail as a boon for the agricultural sector. Unfortunately, if you examine the realities, it will spell a death knell for farming. It will be the beginning of an end for Indian farmers.

It has happened in the United States. Ever since big retail – dominated by multi-brand retailers like Wal-Mart – entered the market, farmers have disappeared, and poverty has increased. So has hunger.

Today, not more than 700,000 farmers remain on the farm in America. Poverty has grown, and hunger has broken past 14-years record.

In Europe, despite the dominance of the big retail, every minute one farmer quits agriculture. This is because farmer’s income across US/EU is on a downslide.

According to a report, farmer’s income in France has come down by 39 per cent in 2009, having already slumped by 20 per cent in 2008.

More recently, in Scotland, low supermarket prices are being cited as the reason for the exodus of dairy farmers.

Low supermarket prices in Scotland have forced irate farmers to form a coalition called ‘Fair Deal Food’ to seek better price for their farm produce.

Studies have shown that Tesco has paid producers 4 per cent less price than the average prevailing in the open market.

It is therefore futile to expect the supermarkets rescuing farmers in India.

Despite the destruction of farming globally by the supermarkets, the Ministry for Commerce and Industry is gung-ho about the virtues of foreign direct investment in multi-brand retailing, which means allowing the big players like Wal-Mart and Tesco to swamp the Indian market.

“The agriculture sector needs well functioning markets to drive growth, employment and economic prosperity in rural areas,” says a discussion paper drafted by the Department of Industrial Policy and Promotion.

I find a number of economists and researchers singing chorus of praise for the role the supermarkets can play. But the entire hypothesis is based on a deliberately prepared flawed basis.

Do the supermarkets really benefit? Since 2006, India has allowed a partial opening up of the retail sector. Has these retail units benefited the Indian farmers and for that the consumers? The answer is no.

The argument is that the supermarket chains will squeeze out the middlemen thereby providing higher prices to farmers and at the same time provide large investments for the development of post-harvest and cold chain infrastructure.

All these claims are untrue, and the big retail has not helped farmers anywhere in the world.

Even in Latin American countries, including Brazil, Argentina, Uruguay and Colombia, where supermarkets, most of them owned by multinational giants, now control 65 to 95 per cent of supermarket sales, farmers have been forced to quit agriculture.

If the supermarkets were so efficient and provided dynamism, I would like to know why the US is providing a massive subsidy for agriculture.

After all, the world biggest retail giant Wal-Mart is based in America and it should have helped American farmers to become economically viable.

But it did not. American farmers have instead been bailed out by the government, providing a subsidy of Rs 12.50 lakh-crore between 1995 and 2009, and this includes direct income support.

And that is why the American farmers are being supported in the form of direct income support by the American government.

It is the massive farm subsidy that supports agriculture in the US. If this subsidy, classified under Green Box for WTO calculations, is withdrawn (as analysed by UNCTAD-India), US agriculture collapses.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008.

In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. And it is primarily for this reason that the farm incomes appear lucrative.

Left to big retail alone, European farmers would have packed up by now.

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.

A latest 2010 report by the Organisation for Economic Cooperation and Development (OECD), a group comprising the richest 30 countries in the world, states explicitly that farm subsidies rose by 22 per cent in 2009, up from 21 per cent in 2008.

In just one year in 2009, these industrialised countries provided a subsidy of Rs 12.60 lakh crore to agriculture. And it is primarily for this reason that the farm incomes appear lucrative.

Left to big retail alone, European farmers would have packed up by now.

In India, it is markets that sustain the farmers and not subsidies. We are therefore importing a failed model from America.

An illusion is therefore created as if the supermarkets have removed the middlemen from trading.

But in reality, the big boys now share the commission between them. The new battery of middle-men, who replaces the traditional middle-men, are the quality controller, certification agencies, packaging industry, processors, wholesalers etc.

Do supermarkets help remove poverty? Based on biased studies by the consultancy firms and some institutes, the government believes that supermarkets will create employment and therefore help in ameliorating poverty.

This too is flawed assumption. Lessons need to be drawn from a 2004 study done by Stephen J Goetz and Hema Swaminathan of the Department of Agricultural Economics and Rural Sociology, at Pennsylvania State University in the United States.

The authors measured the impact of Wal-Mart’s massive retail boom on poverty in various American states.

In this eye-opening study, entitled “Wal-Mart and Poverty”, the comprehensive study clearly brings out that those American states that had more Wal-Mart stores in 1987, had higher poverty rates by 1999 than the states where fewer stores were set up.

“Equally important, the counties (districts) which built new Wal-Mart stores during the period 1987 to 1998 also had high poverty rates,” the report concludes.

Interestingly, increased poverty growth from Wal-Mart operations comes at a time when poverty rates nationally in America were otherwise going down.

Claims by the big supermarkets to be driving economic growth by creating thousands of jobs have been exposed as a sham.

In UK, it has now been shown that supermarket chains like Tesco and Sainsbury have failed to live up to their promise of creating thousands of jobs and thereby driving up the economy.

In the past two years, Tesco had promised to create 11,000 jobs and Sainsbury another 13,000.

Tesco had created only 726 jobs, while Sainsbury actually terminated the services of 1600 of its existing employees, leaving 874 people unemployed.

How do we expect Tesco/Sainsbury to create additional employment in India when they have failed to stand up to their commitment back home?

Big retail does not create additional employment but actually destroys the existing employment. Here is a comparison which should help remove the wool from your eyes.

The Indian retail market is estimated to be around $ 400 billion with more than 120 million retailers and employing over 400 million people.

On the contrary, the US-based giant Wal-Mart, a global leader in big retail, also has a turnover of US $400 billion and employs only 2.1 million people. Which one of these retail systems provides employment is crystal clear.

If you think Wal-mart is here to create employment opportunities you must be living in a fool’s paradise. Simply put, they are investing in India to make money.

I don’t know how therefore economist, policy makers and the ministers can think that big retail will provide employment while the evidence from across the world shows that big retail has displaced millions who are already employed.

Are we not deceiving the nation by presenting wrong facts?

At stake is the livelihood security of tens of millions of hawkers, small traders and farmers.

How can any sensible government that claims to work for the aam aadmi actually bring in massive destruction of livelihoods in the name of foreign direct investment?

Why is our government so keen to pull out the US/EU economy from recession and in turn push India into a headlong depression?



Sukhpal Singh

With the Union Cabinet deciding to allow 51 per cent foreign direct investment (FDI) in multi-brand retail on Thursday the way has been cleared for the entry of global supermarket giants in India. There are doubts and fears amid hopes for long-term gains

Photo: S Chandan


ONE of the conditions for 51% FDI in multi-brand retail proposed is that the players will source at least 60% of their farm produce requirements from small farmers. A small farmer is defined as one with up to 10 hectares. It is important to understand implications of FDI in food retail for various stakeholders.

The more important questions to be asked on the issue of FDI in retail are: Does it really help farmers or small farmers? Does it improve efficiency of food supply chains and help lower food inflation which India is grappling with? And of course, how does it impact traditional food retailers’ livelihood?

Small farmers may not gain

The operations of domestic fresh food supermarkets in India have not made any difference to the producer’s share in the consumer’s rupee so far (one of the arguments of the DIPP discussion paper for permitting FDI in retail) other than lowering the cost of marketing of the producers as supermarkets have collection centres in producing areas unlike the Agricultural Produce Market Committee (APMC) markets (mandis) which are in distant cities.

But these supermarkets will buy only ‘A ‘grade produce, that too on open market-based prices, and only a part of the output of farmers, who end up going to an APMC mandi to dispose of the remaining/rejected produce. The chains procure from “contact” farmers without any commitment to buy regularly as they do not want to share the risk of growers. Thus, the involvement of supermarket chains with producers is low and there is no delivery of supply chain efficiency as many of them have already wound up e.g in Gujarat.

Supermarkets and malpractices

Though the move to open up Indian markets to foreign retailers is meant to benefit small farmers, the condition of having 10 hectares of land will leave most of them out. There are other problems too:

  • Domestic supermarket performance so far does not give any hope that FDI-driven supermarkets will be any different in terms of benefits to small farmers
  • Buying and selling power of supermarkets due to market concentration will come in the way of benefits to farmers and consumers.
  • Traditional retailers will suffer a loss of livelihood due to competition from supermarkets
  • Many malpractices by supermarkets will not let farmers benefit
  • Supermarkets do not lead to lower food prices if we see global evidence.

Key policy initiatives

Until now only 51% FDI in single-brand retail and 100% FDI in wholesale cash and carry trade was allowed. The paper put up by the Department of Industrial Policy and Promotion (DIPP) for public discussion and comments in mid-2010 and the 2010-11 Economic Survey had argued for FDI in food retail trade in India. In mid-2011 an inter-ministerial group also recommended FDI in retail to control food inflation. The following policy initiatives can be taken to safeguard the interests of local stake-holders:

  • Slow down food supermarket expansion through mechanisms like zoning, business licences and trading restrictions.
  • Strengthen competition laws and regulation of supermarkets
  • Give legal protection to farmers and suppliers as is done in Japan
  • Permit only formal contract farming, not ‘contact’ farming
  • Set up an independent retail commission to supervise and regulate supermarkets to protect interests of suppliers, consumers and labour and support to local retailers and farmers
  • Establish multi-stakeholder initiatives in food value chains and provide support to small producers and traditional food retailers.
  • Producers’ organisations and the NGOs need to monitor and negotiate more equitable supply contracts with the supermarkets.
  • Government should encourage producer companies and farmers’ co-operatives for collective bargaining with supermarkets


The noise about benefits to small-holders in high-value crops (read fruits and vegetables) due to supermarket linkages is exaggerated as these crops account for only 2% of the gross cropped area, and the direct linkage is either absent or pretty weak. This is not likely to change even with FDI in retail.

Further, due to the sheer size and buying power of foreign supermarkets, the producer prices may be depressed. In the UK there was a negative relation between the relative market share of a supermarket and the price paid to the suppliers in relation to the average price. The UK supermarket chain Tesco paid its suppliers 4% below the average price paid by retailers.

There have been a large number of supermarket malpractices across the globe which include payments to be on the supplier list (listing fees), threats of delisting if the supplier price is not low enough, payments and discounts from suppliers for promoting/opening new stores, rebate from producers as a percentage of their supermarket sales, minus margins whereby suppliers are not allowed to supply at prices higher than the competitor price, delayed payments, lowering prices at the last minute when the supplier has no alternative, changing quantity/quality standards without notice, just-in-time systems to avoid storage/inventory costs, removing suppliers from the list without good reason, charging high interest on credit, using tough contracts and penalties for any failure to supply.

If it is not misreported, the limit of 10 hectares is laughable as there are hardly 1% farmers who have more than 10 hectares of land. Thus, putting this condition is no good as it is too broad and covers 99% of farmers and, therefore, does not differentiate among farmers at all. Even if it is assumed that it is 10 acres (4 hectares), it will be more than 94% of all farmers (2005-06). How does this conditionality help really small-holders in whose name the permission is being granted? The retail players may work with the top layer (5%) of these farmers and still meet the conditions.

Small retailers to be hit

The supermarket expansion also leads to employment loss in the value chain as compared to 18 jobs created by a street vendor, 10 by a traditional retailer and eight by a shop vendor in Vietnam, a supermarket like Big C needed just four persons for the same volume of produce handled. Metro Cash & Carry employed 1.2 workers per tonne of tomatoes sold in Vietnam compared with 2.9 persons employed by traditional wholesale channel for the same quantity sold. The spread of supermarkets led to 14% reduction in the share of “mom and pop” stores in Thailand within four years of FDI permission. In India 33-60% of the traditional fruit and vegetable retailers reported 15-30% decline in footfalls, 10-30% decline in sales and 20-30% decline in incomes across the cities of Bangalore, Ahmedabad and Chandigarh, the largest impact being in Bangalore, which is one of the most supermarket penetrated cities in India.

Another proposed condition is that FDI in retail will be permitted in all cities with a population of more than one million. The question to be asked is: How many cites in India are really below one million population and how long? Further, given the size of the supermarket retail stores, they may be located in one city but their coverage in terms of potential clientele will extend to neighbouring towns as well.

Impact on food inflation

So far as the role of FDI-driven food supermarkets in containing food inflation is concerned, the evidence from Latin American (Mexico, Nicaragua, Argentina), African (Kenya, Madagascar) and Asian countries (Thailand, Vietnam, India) shows that the supermarket prices for fruits and vegetables and other basic foods were higher than those in traditional markets.

Also, the lower procurement prices through direct procurement from farmers need not lead to lower consumer prices in supermarket chains as procurement prices are more about the bargaining power of buyers and suppliers. Even if it is accepted that supermarkets are able to offer lower prices, the low-income households may face higher food prices because of reasons of distance from supermarkets, and higher prices charged by supermarkets in low-income areas. Thus, there is no direct correspondence between modern retail and lower food prices and, thus, better food security of the poor consumers. Therefore, the inflation containment logic for FDI in food retail does not stand ground given the empirical evidence from across the globe.

Thus, supermarkets would lead to the concentration of market power, with upstream suppliers facing buyer power in terms of lower prices and consumers (buyers) facing higher prices due to lower competition, besides traditional retailers suffering a decline in their business.

Need for regulation

The biggest fear in India is not that FDI in retail per se is worse than domestic corporate investment for farmers or traditional retailers; it is that there may not be adequate institutions and effective governance mechanisms to regulate and monitor operations of the global retailers.

If the monitoring of wholesale ‘cash n carry’ stores so far is anything to go by, there is no regulation and the norms are flouted openly at the store level by the existing players. They are found to do retail sales in the grab of wholesale as the size of a single purchase (minimum ticket size) was just Rs. 500 or Rs. 1,000 which does not seem to be governed by any regulation.

Given the global and Indian experience of supermarkets so far, it is important to slow down food supermarket expansion by mechanisms like zoning, business licences and trading restrictions. Further, there is need to limit buying power of the supermarkets by strengthening the competition laws like the legal protection given to subcontracting industries in Japan in their relations with large firms. These provisions are monitored by the Fair Trade Commission. If contract or “contact” farming is only another name for subcontracting prevalent in industry, then it is only logical to extend such legal provisions with necessary modifications to farming contracts.

Also, provisions for legally binding and clearly worded rules for a fair treatment of suppliers and an independent authority like a retail commission to supervise and regulate supermarkets are required. This authority should ban the buying of products below cost and selling below cost, improve local traditional markets for small growers, delay the pace of supermarket expansion, establish multi-stakeholder initiatives in the chains and provide support to small producers and traditional food retailers.

Producers’ organisations and NGOs need to monitor and negotiate more equitable contracts with supermarkets. The government should play an enabling role through legal provisions and institutional mechanisms like helping farmer co-operatives, producer companies and producer groups to facilitate the smooth functioning of supermarket linkages and avoid ill-effects.

The writer is a Professor, Institute of Economic Growth (IEG), Delhi. Email:sukhpal@iegindia.org



Walmart Effect: for those who are batting for FDIs in retail sector

We are hearing Manmohan Singh and his gang, Saharad Pawar, Jaiprakash Narayan and others batting for FDIs in Retail oector and saying that FDIs in retail sector will increase employment opportunities and provide better prices to farmers.  In US the organised retail sector led by Walmart has successfully pushed down the prices for the farmers and killed all the small time shop keepers.  Read from various sources, Universities on the ‘Walmart Effect’.

Unfortunately in India no Academic institute is interested in this.  Fortunately the Parliamentary Standing Committee on Commerce has made a critical analysis on this.

Understanding Wal-Mart Effect

Wal-Mart and Local Enemy

The new Wal-Mart Effect: Role of private contracting in global governance

The Effect of Wal-Mart on local labour market

Impact Wal-Mart phenomenon on Rural Communities

Wal-Mart and Country wide poverty

Wal-Mart’s impact on America’s Economy, Environment and Communities

Wal-Mart’s Economic Foot print: a literature review


Locational impact of Wal-Mart entrance

Wal-Mart effect








Sharad Pawar says FDI will help farmers

by Shubhangi Khapre

November 28, 2011

At a time when the opposition parties and some of the alliance partners supporting the UPA government are raising a hue and cry over the 51% foreign direct investment in retail, Union agriculture minister Sharad Pawar has come out in strong defence of prime minister Manmohan Singh.

In a message to those raising an alarm over the move, Pawar said, “The policy will be enforced only in the big cities, which have a population of more than 10 lakh. As a result, the smaller towns with lesser population are clearly being exempted.”

He said, “The policy, which promises to usher in reforms, will benefit farmers, directly or indirectly.”

Maintaining that government cannot compromise farmers’ interests, he said, “The critics are overlooking the fact that the policy’s main objective is to enhance the financial ability of the farmers who are responsible for the produce. If the farmers’ produce is directly lifted from the fields, with them receiving higher remuneration for it, why should there be any objections?” he asked. “It has always been my endeavour to address farmers’ interests.”

Citing an example on how onions are traded between Nashik and Delhi he said, “Currently, the onions from Nashik are purchased for Rs200 to Rs300 per quintal. But when they reach Delhi, the prices shoot up to Rs1,400 per quintal. Even if one were to consider the transport charges, the prices should still be lower.

The higher price is on account of multiple layers of agents who demand their commissions. If through reforms we can get rid of the agents, both the farmers and consumers will benefit.”

Clearly defining the NCP’s support to the policy he said, ” As ministers we participate in the policy-making of the government at the cabinet meeting.”

Meanwhile, senior BJP leader Gopinath Munde has strongly criticised the policy and threatened an agitation in the state.

Q&A: Vandana Shiva ‘Retail FDI is not about investment, but market grab’

Q&A: Vandana Shiva
‘Retail FDI is not about investment, but market grab’
Sreelatha Menon / November 27, 2011, 0:40 IST

The Cabinet’s decision to allow up to 51 per cent FDI in multi-brand retail was taken without consulting the states, activist Vandana Shiva tells Sreelatha Menon.

Three years ago, you had campaigned against FDI in retail. But, with the Cabinet’s decision to open the sector to foreign chains, it has been made a reality. Do you accept it now? You have been silent on the issue.
It is still wrong, and many times over so. First, the model of FDI in multi-brand retail has completely failed. The failure has been established in the West. Why else do you have the Occupy Wall Street protests? Also, the decision was taken by the government on the third day of the Opposition demanding action on price rise and the economic crisis. The government seems to be saying, “We don’t care about Parliamentary democracy”. As far as I am concerned, I am writing to the states to improve the understanding on implications of the Cabinet’s decision. The media has been silent, too. In fact, it has been celebrating it, as if it was a big achievement.

One of the reasons in its favour is it would cut wastage and create a cold chain.

In the last one year, I wrote foreword to many books; most were on the wastage in the giant retail model. There is 50 per cent wastage. That India records 40 per cent wastage of food is a lie. It is another matter that the Prime Minister is allowing grains to rot by not picking them up.

How can there be wastage in big retail?
About 50 per cent of the wastage is at the farm level. If you order bread from a bakery, the baker has to stock it all day, and throw what is not sold.

But isn’t it supposed to help farmers, since 30 per cent of the procurement is local?
That is another lie. They call small retail ideological. But it is a reality in this country. The entry of Walmart and the likes started only after India inked the knowledge agreement on agriculture with the US.

As for farmers, if Monsanto’s entry led to a quarter million suicides, Walmart would pave the way for more. The model thrives on making everyone reduce margins, till none exist at lower levels. People reduce their margins till they go out of business. Besides, the criterion for 30 per cent local procurement qualifies businesses below $100 million. That is not small-scale in India!

Also, their model is to use five companies for two years, and then abandon these for new ones.

What would be the implications on labour? Won’t it create jobs?
Why is Walmart importing 80 per cent of what it sells in the US from China? Walmart can’t exist where there are labour rights. They had to leave Germany. As for jobs, the difference between India and the US is we have surplus labour. However, the irony is displaced farmers would not find jobs in these shops. They get educated kids. The poor migrants here can then resort to crime.

What about cold chains and backend infrastructure, which would come with retail FDI?
Does our country lack backend infrastructure? It is decentralised and distributed across the country. If there is a functional village haat or a local mandi that is backend infrastructure, they want to centralise these.

Walmart, for instance, entered India on cash-and-carry five years ago. What backend infrastructure have they created so far? If they couldn’t in five years, what can any of these companies do now?

But hasn’t China benefited from FDI in retail?
Yes, their domestic retail has doubled. But the truth is there was not a shop there. You are comparing a country with zero retail with India, which has a 400 million strong retail force.

The Cabinet decision is not about investment, but market grab. It is the Macaulay effect: You feel inferior and thus, succumb to anything that comes from outside, even if it is worthless.

Why do you call it market grab?
The whole unemployment crisis in the West is due to the model of centralised procurement by a few big players. If the big retailer is to import all medicines from China, our pharmacists would shut shop. Our electronics shops would shut shop. People would go to the big retailer to get cheaper stuff. In the 80s, the difference between retail and wholesale prices was six per cent, which rose to 50 per cent six years ago. With FDI in retail, 98 per cent would go to retail and just two per cent to farmers.

But no state or party has objected so far.
This is because states have not been consulted. It is so undemocratic. And, the Opposition has been tricked when it was not prepared for it. It shows the government refuses to learn a lesson from what happened to Europe and the US. It is an insult to the nation.

Have you been supporting the Anna movement?
I have known Anna since 1984, and his work in Ralegan Siddhi is great. In April, I told him the challenge is to join the energy of existing movements. It is focused on one law. It should be a set of parallel movements, with each member taking up a cause. Maybe, (Arvind) Kejriwal can take up Lok Pal and someone else can take up another issue. Public support can be channelised to many issues to create a nationwide movement for change on many fronts.

Critics have said the Rashtriya Swayamsevak Sangh (RSS) has been driving the movement. Do you agree?
No, that is not true. The RSS has not been able to keep up with issues and is out of touch. If it wanted to do something, it would do it on its own. It is a coming together of many people from different movements. I was called for their first meeting in January, but wasn’t able to make it. And, there were people from across the spectrum — from Ramdev to activists.

Would you join them?
No. I don’t jump into any bandwagon.

FDI in Retail Sector

The Parliamentary Standing Committee on Commerce examined the subject of Foreign and Domestic Investment in the Retail sector beginning April 5, 2007 under the chairmanship of Dr. Murli Manohar Joshi. The Committee placed its report before Parliament on June 9, 2009.
Key Issues
The Standing Committee identified certain key issues while analysing the impact of FDI in the retail sector. These are:

a. Modern retail would displace a large number of jobs.

b. Global retail chains would adopt predatory pricing tactics to wipe out domestic competition (small retailers).

c. Once global retail chains are established, they would be in a position to dictate prices for both buying wholesale, and selling retail products.

d. Retailing itself cannot boost GDP. The growth in manufacturing sector needs to be increased.

Findings and Recommendations

Brand product retailing
FDI in retailing of products under a single brand is permitted upto 51% with prior government approval. Many shops and malls do not adhere to this provision.


Blanket ban should be imposed on domestic and foreign corporate retailers from entering into retail trade in grocery and food items, and restrictions should be imposed on sale of other consumer products. Further licences should not be issued for ‘cash and carry’ retail. Reservation policy should be adopted for small and medium retailers, and financial assistance should be provided for their modernization.

Unemployment created by corporate retail
Over 200 million people in total are dependant on the retail sector. There exists no built-in policy to relocate or re-employ those dislocated by corporate retail.

a. Built-in policy to re-employ those dislocated by corporate retail or shopping.

b. A regulatory framework to prevent displacement of small retailers through unfair practices.

c. Traditional system of the small trader must be protected by improving institutional credit for expansion and modernization.

d. A National Commission may be set up to study the problems of the retail sector, and two laws to look after the interests of small retailers, and to regulate anti-competitive practices of corporate retailers respectively, should be enacted.

e. Study of the economic and traffic impact of any large retail store must be made by an independent institution before allowing it to open.

Practices of big retail companies
Big retailers use large amounts of land, space and electricity, and have standards of buying farm produce which promote excessive use of pesticides.


a. Set up a Retail Regulatory Authority to act as a whistle-blower.

b. Planning and environmental laws should be used to curb the growth of malls. Transparent criteria for the granting of licences for setting up such retail outlets should be devised.

Other Recommendations
a. Entry of foreign companies into book publishing needs to be carefully regulated.

b. Creation of safeguards to prevent diversion of agricultural land for setting up malls and retail stores.

c. A model central law should be created to impose strict regulations on big malls and their adherence to labour and environmental laws, etc.

FDI in retail likely within weeks TNN Jul 1, 2011, 12.32am IST

NEW DELHI: After years of debate, foreign direct investment in retail may soon be a reality with a panel of secretaries expected to approve the framework for allowing global retail chains to set up shop in India later this month.

Government sources said the proposal has gained momentum, with both Prime Minister Manmohan Singh and finance minister Pranab Mukherjee backing it, and chances are that the Cabinet could clear the proposal in August, setting the stage for the entry of large chains by the end of the current financial year.

While a date for the meeting of secretaries would be fixed over the next few days, the outline of the policy has been finalized after two rounds of inter-ministerial consultations. The plan envisages allowing foreign chains such as Walmart and Tesco to hold up to 51% stake in the Indian venture. This is higher than what had been proposed during the first round of consultations.

But there could be areas demarcated for these retailers. For instance, it would be left to state governments to decide whether foreign chains are welcome or not. Similarly, the government intends to allow these chains to operate in large cities only. How large cities are defined remains to be seen. If the cut-off is fixed at one million population, then the retailers can open stores in around 50 cities. But if the bar is raised to 10 million, then only Delhi, Mumbai and Kolkata will make the cut.

The move is aimed at countering criticism that the large chains will result in the closure of mom-and-pop stores. Over the years, Opposition parties such as BJP have used livelihood concerns of kirana stores to block FDI in multi-brand retail.

Though the government believes that a large footprint of multi-brand retail chains will boost employment, efforts are also underway to stipulate local sourcing requirements. For instance, the secretaries’ panel will discuss a plan to mandate 25-30% sourcing from small and medium enterprises.

In a recent interaction with TOI, economic affairs secretary R Gopalan had said the government could contemplate putting in place rules stipulating majority sourcing from India. But the view in other ministries is that this might not be compatible with the rules prescribed by the World Trade Organisation.

Further, to stay competitive, especially vis-a-vis kirana stores, the organized retailers will be forced to procure from local manufacturers and producers.

Only in case of goods such as electronics or high-technology items that are not manufactured in India or the local producers are not cost-competitive would a retailer opt to import.

In any case, most international players are already in India and have been sourcing for their global requirements or have additionally got into the wholesale cash-and-carry segment where they are not permitted to sell to individuals.

So, in a way, the supply chains have already been built, said a government official. The other requirement that foreign retailers are going to face is a mandated level of investment in back-end infrastructure to develop supply and distribution chains which would help check wastage.