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Comments on Foreign Direct Investment in Multi-brand Retail Sector

1. Should FDI in multi brand retail be permitted? If so, should a cap on investment be imposed? If so, what should this cap be?

We are of the view that 100% FDI should be allowed in multi brand retailing without any restriction. India’s commercial sector is rather underdeveloped compared with other countries. The entry of the foreign players will help upgrade the local enterprises. First, foreign enterprises bring with them advanced management concepts, sales and marketing experiences and service-oriented business approach when they enter the Indian market. Second, foreign investment in India’s commercial sector will enable the import of the advanced technological and logistic management knowhow from overseas. Third, competition in India is expected to become more intense. To survive and grow, local enterprises are forced to innovate and make progress. Development of the commercial sector is critical to the country’s economic development. Advancement of the commercial sector will also help stimulate consumer demand and enhance consumption.

2. To develop the retail trade in food grains, other essential commodities and multi-brand retail in general; should FDI be leveraged for creating back-end infrastructure? To ensure that foreign investment makes a genuine contribution to the development of infrastructure and logistics, should it be stipulated that a percentage of the FDI coming in ( say 50% ) should be spent towards building up of back end infrastructure, logistics or agro processing?

We are of the opinion that 25% FDI may be earmarked for development of infrastructure and logistics essential for development of multi brand retail. We are of the firm opinion that the opening of the commercial sector will attract foreign investors to set up stores, warehouses, logistics and distribution centers, and other facilities in India. The influx of foreign investment will help boost India’s infrastructure development.

3. It is necessary to encourage only genuine players in this sector and avoid a situation where retail outlets are run through working capital support from financial institutions. Should a minimum threshold limit for investment in backend infrastructure logistics be fixed? If so, what should this financial threshold be?

It is needless to say that only genuine players have to be encouraged. As stated above 25% FDI may be earmarked for development of infrastructure and logistics essential for development of multi brand retail.

4. To develop our rural sector, should conditionalities be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 50% of the jobs in the retail outlets should be reserved for the rural youth?

No such stipulation should be prescribed. India is a vast country characterized by regional and urban rural disparities, foreign retailers can at most dominate some cities and regions. It is true that most of the foreign enterprises have only been focusing on large- and medium-sized cities and have not been able to meet the needs of the people in small cities and countryside due to the lack of local knowledge and the logistics difficulties. Retailing is an industry closely related to local culture, in which domestic businesses still have distinctive advantages.

5. Similarly, to develop our SME sector through local sourcing, should we stipulate that a minimum percentage of manufactured products be sourced from the SME sector in India?

We are of the opinion that at least 30% of manufactured products be sourced from the Indian SME’s.

6. How best can small retailers be integrated into the upgraded value chain? Can they be provided access to the logistics/ supply chain set up by the FDI funded retailers? Should it be stipulated that a minimum percentage of the latter’s sales should be made to retailers through special wholesale windows?

We are of the opinion that at least 25% of FDI funded retailers should be made to retailers. The small retailers may be granted access to the logistics/ supply chain set up by the FDI funded retailers but designing mechanism to implement this in full spirit is a huge challenge. Instead FDI funded retailers may be asked to contribute 1% of FDI to a common pool which should be used by the Govt. for developing logistics/ supply chain for small retailer.

7. As a part of a calibrated reform process, should foreign investment for such stores be initially allowed only in cities with population of more than 10 lakhs (2001 census)? As there may be difficulties faced with regard to availability of real-estate in such cities for setting up such ventures, should an area of 10 kms around the municipal/urban agglomeration limits of such cities be included within the definition of the city?

Such restriction should be applied only to hyper and supermarket which have FDI. Floor Area to qualify as hyper market and supermarket may be defined. Departmental stores should be allowed at any place without any restriction.

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