Is India ready for Wal-Mart?

Should we, shouldn’t we? This seems to be the moot question the Union government is asking stake holders as it embarks on the debate on opening up foreign direct investment (FDI) in multi-brand retail. The Centre has sought suggestions from

various stakeholders on this much debated topic, an issue that could generate a lot of heat in political and business circles in the country.

“We want to approach FDI in retail with some amount of caution. That is why we have decided on a calibrated approach,” said R P Singh, Secretary in the department of industrial policy and promotion, a part of the commerce ministry.

  The government has circulated a discussion paper, which will be open for comments from stakeholders until July 31. “Keeping in view the large requirement of funds for back-end infrastructure, there is a case for opening up of the retail sector to foreign investment. At the same time, in the Indian context, there is a view that this may be more appropriately done in a calibrated manner. We must ensure that the FDI does make a real contribution to address the inadequacies of back-end infrastructure. Alongside, we need to address the challenge of integrating the small retailer in the value chain,” said the Department of Industrial Policy and Promotion discussion paper. Incidentally, the paper does not suggest an upper limit on foreign investment in multi-brand retail.

Foreign investment in multi-brand retail is presently not allowed but MNCs can invest up to 51per cent in single-brand retail. Large multinational retailers such as US-based Wal-Mart and Germany’s Metro AG that operate in wholesale cash-and-carry ventures in India have been clamoring for long to open up multi-brand retail to foreign investment. Foreign investment in single brand retail — since being opened in April 2006 — is about Rs 900 crores.
                                                                               
The paper also sought to make a strong case in favor of small retailers in the unorganized sector, saying their growth was constant at around 15 per cent annually compared to dip in profits recorded by the organized retailers. Opening FDI in retail could also assist in bringing in technical know-how to set up efficient supply chains which can act as models of development.

Singh feels we need to ensure that we get benefits of FDI in the back-end infrastructure and not just have investments in front-end. Right now we are not very sure whether FDI in retail would be very revolutionary.

Previous attempts at opening up FDI in retail, which contributes more than 8 per cent to India’s economic output, have met with stiff resistance. The Left parties and the BJP oppose it vehemently. A parliamentary standing committee headed by BJP leader Murli Manohar Joshi has recommended a complete ban on FDI in retail. However, the UPA government is not dependent on the support of the Left parties for its survival and has been more open to the idea of opening up multi-brand retail to foreign investment.