India allows 51% FDI in multi-brand retails, may affect SMEs

NEW DELHI: India has finally permitted and also showed the 'open' sign to the global retailers such as Wal-Mart, Carrefour and 7-Eleven to get 51% foreign equity to start multi-brand retail stores. This decision has been taken despite the UPA government has witnessed opposition from few allies in the ruling coalition. Reports also suggest that government has also given its nod to 100% equity in single brand retailing.

The decision on permitting foreign capital into multi-brand retailing and also strengthening the cap on single-brand stores have been approved at a two-hour meeting of the federal cabinet yesterday evening, which has been presided over by Indian Prime Minister Dr Manmohan Singh.

B Muthuraman, CII President, said, “This would open up enormous opportunities in India for expansion of organised retail and allow substantial investment in backend infrastructure like cold chains, warehousing, logistics and expansion of contract farming.”

Reports suggest that the 51% FDI will affect the farmers and also the small and medium enterprises (SMEs) since there are nearly 40-million people, who are engaged directly in running the neighbourhood stores.

The Department of Industrial Policy and Promotion in its cabinet note had favoured the move and also said that this decision to allow the global retailers will be helpful in getting new technology, help set up supply chains to reduce wastage of farm produce and also strengthen competition in the sector.

In January 1997, Centre had permitted 100% foreign equity for the wholesale cash-and-carry chains when HD Deve Gowda has been the country's prime minister. Then in 2006, the doors have been opened for nearly 51% foreign equity in the single-brand retailing segment, although approval for processing applications to start wholesale cash-and-carry chains have been placed under the automatic route.

Internationally, foreign equity in retail is allowed in Brazil, Argentina, Singapore, Indonesia, China and Thailand without any limits, and Malaysia places equity caps on international investment.