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LATEST NEWS UPDATES | Open the shutters

Open the shutters

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published Published on Jan 11, 2012   modified Modified on Jan 11, 2012
-The Indian Express
 
Even as the UPA’s effort to introduce 51 per cent FDI in multi-brand retail fell on its face, the proposal to allow 100 per cent FDI in single-brand retail is through. Just before the finance minister goes to the US to speak to investors, this decision is something of a face saver. The department of industrial policy and promotion formally announced the decision, with the condition that in case a foreign investor owns 51 per cent or more of a firm, it must procure at least 30 per cent from small and medium domestic businesses.

But single-brand retail has always been a largely unobjectionable idea — it doesn’t actively hurt any constituency. While it might be pleasant to have Niketown and Ikea in India, what consumers and farmers need is FDI in multi-brand retail — an issue that has been made radioactive for a good long time because the UPA botched the politics around it. The several layers of intermediation in the traditional food supply chain raise costs for consumers and lower profits for farmers — and the big box retailers would have brought consolidation and efficiency. India needs broader agricultural liberalisation to lift rural growth rates, and FDI in food retail would have been a big part of this process. Global money and improved supply chains would reduce farm wastage because of greater investment in cold-chain storage and distribution, extending the life of perishable produce (30-40 per cent of fruits and vegetables are wasted because of our inefficient logistics). Besides, for all the alarmist rhetoric from traders, worldwide data shows that small retailers and big box retailers can coexist. In fact, the now-suspended policy for FDI in multi-brand retail was about as hedged and qualified as it gets — global retailers would have been restricted to cities of a certain size, and were required to invest a minimum $100 million up front, half of which was to go into back-end infrastructure, including transport and warehousing.

The prime minister told Bloomberg that after March, the government will “stay the course” and “do everything to encourage foreign investment”. While opening up single-brand retail is a positive declaration of intent, given the growing perception of policy torpor, the real test will be the liberalisation of multi-brand retail — hopefully after the assembly elections in critical states like UP and Punjab, and the budget, are out of the way.


The Indian Express, 11 January, 2012, http://www.indianexpress.com/news/open-the-shutters/898171/


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