India keeps limits on foreign direct investment

Davos: The Indian government said it will not rush into allowing foreign direct investment into the politically sensitive retail sector. In a clear message to global retail giants such as Walmart, Tesco and Carrefour, that have shown interest in entering the Indian market, R P Singh, secretary at the Department of Industrial Policy and Promotion said: “Until a decision is formally taken to allow foreign direct investment in front-end multi-brand, the big chains can come to India and build up infrastructure and integrate with the small retailers.”

Previously India’s Commerce and Industry Minister Anand Sharma had asked the global retail chains like Wal-Mart and Tesco to invest in the back-end infrastructure. “Multi brand can only come when the back-end infrastructure is created, that is where the farmer will get the remunerative prices at the door step,” Sharma said.

Foreign direct investment alone in retail alone cannot solve India’s supply chain problem, Singh said. “We need end-to-end solutions starting with procurement at farm gate to final consumer. We need to carry crops from peak season to off season both through cold chains as well as food processing.”

India’s government is concerned about the consequences of opening the sector, primarily dominated by small retailers and the largest employment provider in the unorganised segment after agriculture. Small, family-owned stores dominate the sector that employs over about 33 million people.

“The right model for India, therefore, will have to be big chain taking care of a whole infrastructure from procurement to processing as well as transport logistics,” he said. In July last year, the Indian government had floated a discussion paper on liberalising the politically sensitive multi-brand retail. The minister has also said that investors need to devise India-specific model and replicate. While foreign direct investment in multi-brand retail is prohibited in India, up to 51% is permitted in single brand retail.