Friday, November 25

51% FDI in multi-brand & 100% FDI in single-brand retail - India Inc. soon to see Walmart like supermarkets

An embattled UPA government has hung the 'Open' sign for foreign retailers, ending years of prevarication on an issue that had become a litmus test of its commitment to take forward the next phase of economic.

The cabinet on Thursday faced down opposition from within and outside to allow foreign retailers to own a 51% stake in the multi-brand retail sector, paving the way for global groups such as Walmart, Carrefour andTesco to open supermarkets in India.

It also allowed 100% FDI in single-brand retail, a decision that will encourage companies such as Sweden's homeware firm Ikea and clothing retailers Gap and H&M to set up shop. Until now, foreign firms were allowed 51% in single-brand retail, while being allowed to own 100% of back-end cash-and-carry operations that serve wholesalers.

The cabinet decision, confirmed to ET by several ministers who attended a late evening meeting and set to be formally announced by the government in Parliament on Friday, provided the spark for a series of realignments in the country's fledgling organised retail sector. For instance, the world's biggest retailerWalmart indicated that it would extend its 'back-end' partnership with the Bharti Group into front-end retailing soon, possibly by picking up a stake in Bharti Retail.

"We have a good relationship with Bharti in the back-end. It is only natural that we will carry this to the front-end," said Raj Jain, head of Bharti-Walmart India. This will in one stroke give US-based Walmart access to Bharti's Easy Day stores that sell directly to consumers.

The government's decision is fraught with great political risk during what is perhaps the weakest phase in its nearly eight years of governing India. The proposal was opposed by two constituents of the ruling coalition - Trinamool Congress and the DMK, a senior cabinet minister said.

"There was some opposition and concern about announcing it in Parliament but Pranab babu (FM Pranab Mukherjee) prevailed," another cabinet minister told ET.

Industry Lauds Bold Decision

Besides its coalition partners, the decision could expose the government to criticism in Parliament as the principal opposition party, the BJP, and the Left parties are opposed to allowing foreign firms in India's retail sector.

But the government's decision to press ahead in the face of opposition won it plaudits from industry, especially at a time it has been pilloried for indecision and policy paralysis. Opening up the retail sector was a key item in a list of suggestions put together by top business leaders for the government as part of ET's Agenda for Renewal campaign.

To blunt some of the expected political criticism of its decision, the government will allow foreign retailers to set up 51%-owned retail ventures subject to minimum investment conditions.

Courtesy: Economic Times

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