Draft paper soon on opening retail sector for FDI'

Our Bureau

New Delhi , Oct. 21

THE Deputy Chairman of the Planning Commission, Mr Montek Singh

Ahluwalia, on Fridaysaid that the Planning Commission is considering the
implications of opening the retail sector for foreign direct investments, and a
draft paper on the same should be ready soon.

Addressing Assocham's 85th Annual General Meeting, Mr Ahluwalia said the

Government will unfold the special purpose vehicle (SPV) for infrastructure
sector by the end of the current calendar year. It will also come out with an
exhaustive energy policy shortly, he added.

He said that several rounds of discussions have taken place among the
policy makers on improving the existing infrastructure facilities. Its result
would bear fruits for road sector in the next three years, he added.

Mr Ahluwalia pointed out that for the railway sector, whatever policy
decisions the UPA Government has taken, their outcome will be visible in the
next seven years.

He announced that the Government is to form a body to look at forming a

policy that would allow private players to run containerised operations, and
to expedite other railway projects in public-private partnership. He said that
consultations have been made to firm up new energy policy, which will be
made public by December end.

Speaking on the occasion, the Chairman of Telecom Regulatory Authority of

India, Mr Pradip Baijal, said that his institution has already recommended
unified licensing policy for telecom sector to the Ministry concerned and was
now awaiting its approval.
Govt gets ball rolling on FDI in retail
BS Reporters / New Delhi/mumbai July 7, 2010, 0:54 IST

Discussion paper out, feedback sought on diverse concerns.

The Union government has initiated a move to open the country's multi-brand retail segment to
foreign investment, without revealing its mind on details such as how much investment will be
permitted.

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In a 21-page discussion paper, it has sought comments from stakeholders on a dozen issues,
ranging from allowing retail chains with foreign capital to open stores in select cities to government
approval for opening each store, mandatory hiring of rural population and sourcing from small and
medium enterprises.

Part of the calibrated opening-up plan touched upon by the paper, released by the Department of
Industrial Policy and Promotion (DIPP) on its website, is the option of initially allowing foreign
investment in cities with a population of at least one million.

Feedback has been sought on steps such as a special legal and regulatory framework for protecting
the interests of small retailers. This, the discussion paper suggested, can be left to the discretion of
states, too.

In addition, it has touched upon the issue of how to protect the public distribution system after the
entry of large foreign players in the multi-brand retail arena. One option is to retain the right of first
procurement for a part of the season or put a system of levy from private trades in case buffer stocks
fell below a certain level.

“We have tried to analyse the impact of organised retail and unorganised retail so that the
government can take a view on the foreign direct investment (FDI) aspect in the sector. Our view is
that, if at all FDI comes, it must fill the gaps that exist in the system in terms of our weak back-end
infrastructure. We should leverage our FDI policy in retail to create our back-end infrastructure,
which is missing in the country at present. This will not only lead to decrease in the wastage of fruits
and vegetables; this will also uplift the position of SMEs (small and medium enterprises) in the value
chain,” DIPP Secretary R P Singh told Business Standard.

“In this discussion paper, we have categorically not suggested any FDI ceiling or cap for the sector.
This call can be taken later on by the government,” Singh added.

“If the policy process is strategically done, it can create a synergic relationship between the small
retailer and the larger retail chains. India can develop its own model, based on its own realities
towards modernisation of this sector in a calibrated manner,” said Rajan Bharti Mittal, president of
the Federation of Indian Chambers of Commerce and Industry, who is also vice-chairman and
managing director of Bharti Enterprises. Bharti and Walmart are partners in a wholesale cash-and-
carry venture. 

The discussion paper has cited the oft-repeated concerns over the entry of foreign capital into the
multi-brand retail format, including the impact on jobs (the sector is the  second largest employment-
generator), displacement of unorganised retailers and the impact on nascent domestic retail chains.

It has also talked about the limitations of the present set up, such as the lack of investment in
logistics resulting in large-scale loss of fruits and vegetables.

The debate over the adverse impact of the entry of foreign retailers has stopped the government for
several years from opening the sector. Foreign companies are allowed to hold up to 51 per cent
stake in retail chains selling just one brand, referred to as single-brand retailing.

In the case of the wholesale cash-and-carry segment, foreign investors are allowed to set up wholly-
owned ventures. Global players such as Walmart and Metro have entered the Indian market through
this avenue, while a host of companies such as Marks & Spencer and Hamleys have used the
single-brand retail format. There is another set of players, including the likes of Beverly Hills Polo
Club and Ladybird, that have franchise arrangements with Indian companies which sell their ware.

“It will not be unconditional opening… The proposed conditions will help soften opposition to opening
up,” said Prashant Khatore, Partner at Ernst & Young.

The move to allow foreign players in the multi-brand retail format is also going to help Indian
companies such as the Kishore Biyani-promoted Future Group to bring in a foreign partner. Biyani
was in talks to sell stake to private equity investors for funding Future’s expansion. Similarly, TPG is
in talks with Vishal Retail to acquire stake in a wholesale venture as part of the latter’s debt recast
package.

Related concerns
The discussion paper floated today has also touched upon the issue of avoiding a situation where
financial investors run the Indian entities.
“Since retailing requires long-term capital and returns are difficult to come by, capping FDI is not
correct. Retailing should be opened up without any cap… It is necessary to encourage genuine
players in the sector. You cannot allow punters who will invest today and sell out tomorrow,” said B
S Nagesh, vice chairman of Shoppers Stop and Hypercity.

“Another important thing which the government should address clearly is how much investment
foreign institutional investors can make in multi-brand retailing,” added Aditya Birla Retail’s CEO,
Thomas Varghese.

The underlying tone of the discussion paper is to allow FDI in a way that the back-end chain and
logistics are strengthened. It has suggested the norms be such that it mandates, say, 50 per cent
investment going towards the creation of infrastructure, logistics and agro-processing facilities.

Similarly, it has suggested the rules could mandate that at least half the jobs be reserved for the
rural youth. “This is a positive move but jobs should be specifically kept for the low-income group,
instead of reserving it for rural youth as they can be utilised at the farming end,” said Saloni Nangia,
vice-president at Technopak.