Retailigence

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Govt rules out FDI in general retail

Posted by retailigence on October 18, 2008

The DIPP has proposed FDI of up to 51 per cent in multi-brand retail.

Even as the government is thinking of allowing foreign direct investment (FDI) in speciality retail formats selling products of many brands, it has emphasised that there is no plan to open up the general retail sector, including fast moving consumer goods, vegetables and groceries, to foreign equity participation.

Sources said the Department of Industrial Policy and Promotion (DIPP) — the nodal department on matters related to FDI — has clarified to the Cabinet Committee on Economic Affairs (CCEA) that in order to protect the interests of small retailers and neighbourhood stores, the general retail sector will not be opened up.

This comes in the backdrop of a series of proposals on opening up the retail sector that the industry department has put before the CCEA. Currently, FDI in multi-brand retail is not permitted, while 51 per cent foreign equity participation is allowed in single-brand retail.

FDI in multi-brand retail is a politically sensitive issue as there is a perception among small retailers that hypermarkets and malls are already adversely impacting their sales. United Progressive Alliance Chairman Sonia Gandhi had written to Prime Minister Manmohan Singh in early 2007 saying FDI in retail should be allowed only after studying the impact on the livelihood of those involved in unorganised retail.

Subsequently, the DIPP ordered two studies — by the Indian Council for Research in International Economic Relations and the National Council for Applied Economic Research — to assess the impact on unorganised retail and the economy, respectively.

Meanwhile, the DIPP has proposed FDI of up to 51 per cent in multi-brand retail of watches, electronic items, computers and sports goods. The industry department is also proposing to allow 100 per cent foreign equity participation in single-brand retail, subject to conditions (see chart).

Sources added that while preparing the note, the industry department consulted small traders, who expressed concern over allowing FDI in general retail but had no objection to such a move in the case of luxury items and goods.

The DIPP believes that the share of sports goods and electronic items in the Indian retail sector is only 2.7 per cent, while that of jewellery and watches is 5.9 per cent.

According to the Icrier study, the Indian retail sector is expected to grow to $590 billion (Rs 27,376 crore) in 2011-12, by rising 83.22 per cent from $322 billion (Rs 14,940 crore) in 2006-07. Within this period, organised retail is likely to grow 45-50 per cent per annum and quadruple its share in the overall retail trade to 16 per cent by 2011-12.

Source: Business Standard

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