Decision on FDI in multi-brand retail likely in July

A decision on the contentious issue of allowing foreign direct investment (FDI) in multi-brand retail is likely to be taken before the Monsoon session of Parliament, sources said.

However, there will be tough riders on the global retail chains for launching their operations. These would include hand-holding the small kirana shop-keepers who fear they could be wiped out by the giant retailers.

In order to protect small traders, the nodal ministry of consumer affairs (MCA) is in agreement with the department of industrial policy and promotion (DIPP) that the foreign retailers will have to make 30% of their sales revenue to the the kirana shops, sources said said.

But they said the Committee of Secretaries (CoS), headed by cabinet secretary Ajit Kumar Seth, is expected to finalise the proposal for cabinet clearance.

"We expect cabinet clearance before the ensuing Parliament session," a member of the CoS said.

He said since there are apprehensions about the impact of opening up of the sensitive sector to FDI on the neighbourhood shops, the clearance would be subject to tough riders.

One of the conditions would be that the retail chains must source 30% of the manufactured items from the micro, small and medium enterprises.

Differences between the DIPP and the ministry of consumer affairs (MCA) over the FDI cap are also likely to be discussed at the next CoS meeting expected soon.

While the DIPP is for allowing 51% FDI in the sector, the MCA is pitching for a ceiling of 49% to ensure that the control lies in the hands of Indians.

DIPP had proposed other riders as well. These included a minimum FDI of $100 million (about Rs 450-460 crore)half of which must be invested in the back-end infrastructure like cold storage, soil testing labs and seed farming.

At present, India allows FDI only in single brand retail chains like Nike and Louis Vuitton, with a cap of 51%. It also permits 100% overseas investment in wholesale cash-and-carry format.

Several of the big chains like Wal-Mart and Carrefour have set up their joint ventures in India, waiting in the wings for their full-scale entry into the multi-brand retail.

India's total retail sector is estimated at $590 billion, with unorganised sector accounting for $496, according to an Icrier report.

The government's policy on retail investment will also help in boosting the country's FDI, which declined by 25% to $19.42 billion in 2010-11 from $25.83 billion in the previous fiscal.