Indian government has opened the gates for Walmart, Carrefour, TESCO etc. to enter Indian market by allowing 51% FDI in retail. The cabinet has also allowed 100% FDI in single-brand retail, though the two recommendations come with 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.
Also, it is important to note that one of the riders of this recommendation is that such retail chains can only be opened in towns with population of more than 1 million, restricting the target segment to only 51 towns in India.
Corporate Affairs Minister Veerappa Moily on Friday said foreign investment in multi-brand retail will help improve supply and tame inflation. “It (FDI in multi-brand retail) will help to tame inflation and (promote) growth rate. A good, systematic supply chain will help in bringing down inflation and help farmers,” Mr. Moily told reporters. Mr. Moily noted there is a “need to prepare a huge supply chain under multi-brand retail”. The Cabinet also decided to allow 100 per cent FDI in the single-brand retail format under which companies in the food, lifestyle and sports business run stores.
The government has maintained that farmers will get higher remuneration and FDI will help in the development of logistics and cold chains in the country.
Corporate America has welcomed the bold move of the Indian Cabinet to permit Foreign Direct Investment (FDI) in multi-brand retail and remove the cap on FDI in single-brand business, noting that it will help bring down inflation and create thousands of jobs. “The singular act of opening the multi-brand retail sector to foreign direct investment will significantly benefit the Indian consumer by spurring the modernization of India’s vast agri-retail marketplace,” said Ron Somers, the President of the US India Business Council. “Investments will now flow into India’s farm-to-market supply chain, which will usher in expertise and bring efficiencies to India’s supply chain infrastructure. Food price rise and inflation will now effectively be tamed,” he said. “Opening the retail sector will create a larger market opportunity for Indian farmers, increasing quality and choice for India’s sophisticated consumers,” Somers said.
Addressing the media in the Capital, the Commerce Minister, said the policy framework on FDI which is the official lay-out of the government, is in sync with all the stakeholders especially the small-time farmers and the kirana stores. Sharma said, Indian economy still continue to be agrarian in nature and due to the lack of sufficient infrastructure the post harvest lost is accounted for 45 percent in the country. Commenting on the plight of the farmers he said, due the presence of the intermediaries the producers hardly get 1/7th of the market value their products. He said as per the study of the World Bank, it is the intermediaries which hit hard the financial stability of the farmers.
In the press conference, he mentioned allowing FDI in the multi and single brand retail with greater proportion will address the woes of the farmers. The minister said “the policy is the need of the hour and is an investment in the present and the future”. The policy on FDI in retail sector will create an integrated value chain as both the farmers and the consumers will stand to benefit out of it, said the commerce Minister. Comparing the policy decision with countries like China, Russia, Malaysia and Thailand, Sharma said the FDI framework on retail will help create more jobs and steer the course of the economy. He said no FDI cap in retail in countries like China, Russia and Thailand augured well for their economies.
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