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Nov 25, 2011, 10.03 AM IST | Source: CNBC-TV18

Cabinet approves 51% FDI in multi-brand retail

Indian retailers finally get a chance to rejoice as the Cabinet today cleared the bill to increase foreign direct investment to 51% in multi-brand retail and 100% in single brand.

Cabinet approves 51% FDI in multi-brand retail

Indian retailers finally get a chance to rejoice as the Cabinet today cleared the bill to increase foreign direct investment to 51% in multi-brand retail and 100% in single brand.

Commerce and industry minister Anand Sharma said that he would give a statement in Parliament on retail FDI.

Currently, India allows 51% FDI in single brand retail and 100% FDI in cash and carry format of the business.

The decision will be cheered by global retail giants such as Wal-Mart that have long been eyeing India's lucrative retail sector which is mainly populated by small ‘mom & pop’ shops. Currently, organized retail, or large chains, makes up less than 10% of the market.

An ASSOCHAM report states that India’s overall retail sector is expected to rise to USD 833 billion by 2013 and to USD 1.3 trillion by 2018, at a compounded annual growth rate of 10% driven by the emergence of shopping centres and malls, and a middle class of close to 300 million people that is growing at nearly 2% a year.

Also read: Increased competition in retail to cool inflation, says Ajay Dua

The recommendation to increase FDI in retail was made by Cabinet Secretary Ajit Kumar Seth, however it came with certain riders like 50% of the investment and jobs should go to the rural areas, 30% of the inputs should be sourced from medium and small enterprises and investment in infrastructure.

However, such entities would be allowed only in towns with population of over 10 lakh.

Commenting on the development, president of the Confederation of Indian Industry, B Muthuraman, says “CII strongly supports the introduction of FDI in multi-brand retail recognizing that it would benefit the consumers, producers (farmers) and small and medium enterprises (SMEs) and generate significant employment.”

Chandrajit Banerjee, director general of the CII goes on to say that “this move is expected to substantially benefit consumers also; by making available farm produce at much lower prices.”

Even though everyone is celebrating this decision, Raj Jain, chief executive of Bharti Walmart, warns that India may not see a flood of investments immediately. “There should be substantial investment in the next two-three years,” he told CNBC-TV18.

However, Jain is a little put-off by the condition to invest in towns with a population of more than 10 lakhs. “Only 51 towns in the country meet this requirement, so a large group of people will not get this service,” he said.

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