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UPA opens the door for global retailers
-The Times of India
 
After debating the issue for over a decade, the government on Thursday threw open the multi-brand retail segment to foreign chains such as Wal-Mart, Carrefour and others in a move to attract overseas investment and dispel doubts about the coalition's ability to push through big-bang reforms. 

After nearly two hours of discussion on Thursday evening, the Union Cabinet decided to allow foreign retailers to hold 51% stake in the multi-brand retail sector and also raised the cap on single brand segment to 100%. The decision, which will be formally announced on Friday, comes with several riders including one that restricts its application to only 53 cities that have a population of 1 million or more. 

The investment needed for entering the sector has been put at $100 million, 50% of which should be set aside for building backend infrastructure such as cold chains and warehousing. Further, to make the move politically palatable, the government has made it mandatory for foreign retailers to source 30% of their requirement from small and medium enterprises. 

Although the Cabinet approved the FDI policy, at the ground level the decision will have to be taken by the states. Retail trade is a "state" subject and all requisite clearances have to come from local authorities. The resistance from BJP, the Left and other players which have governments in different states will be an obstacle for an all-India rollout. At present, the organized retail market is estimated to be worth around $28 billion (around Rs 1.45 lakh crore) and could be nine times bigger by 2020. 

The Cabinet decision came against the backdrop of not just criticism from the Left and BJP, but also resistance from allies such as Trinamool and misgivings within the Congress, reinforcing the estimate that the timing may have been influenced by the desire to shake off the perception of policy paralysis, Government did not waver despite Trinamool chief Mamata Banerjee going public with her reservations and the uncertainty in Congress circles over how the decision may play in poll-bound UP and Punjab where traders are an important constituency. 

Even on Thursday, there was intense debate within the Cabinet with some ministers first seeking the rationale for allowing FDI, source said. Those like urban development minister Kamal Nath -- who had as commerce minister sought to push the move during UPA-1 -- argued in favour of the move saying it should not seen as a move to incentivize FDI. He reportedly told the ministers that with half the investment going towards investment in back-end retail, the move would promote agriculture and rural development. 

But all the ministers did not seem fully convinced and those like defence minister A K Antony are said to have expressed concern over the impact of the liberalisation on neighbourhood mom-and-pop stores. At this point, those in favour of the proposal argued that while the proposal was being seen as a big reform move, it would only have a limited impact given that stores could only be opened in 53 cities, of which only one is in Kerala. 

On the issue of opposition from the BJP and the Left, the ministers also said that ultimately, the decision to allow stores was with the state government and whoever did not want global chains could deny permission. 

West Bengal chief minister Mamata Banerjee had gone public with her opposition to the move as soon as the proposal became common knowledge. In fact, commerce & industry minister Anand Sharma, who piloted the proposal, on Thursday went on a wooing mission to the Bengal Day function where Banerjee had come. During the Cabinet meeting, her envoy, railway minister Dinesh Trivedi, sought more consultations on the proposal although by one account he is said to have come around to it. 

The move to open up the multi-brand sector comes nearly 16 years after it was initially planned. It was blocked several times due to stiff opposition from traders, opposition parties and also due to differences within respective coalitions. Critics had said opening the sector would lead to massive job losses. 

The government is expected to make an announcement on the issue in Parliament on Friday. Analysts said the Cabinet's decision to open up the sector was bold as it came in the middle of a noisy Parliament session where the government is battling opposition charges over the price situation and corruption. It also comes ahead of crucial elections in Uttar Pradesh. The state had strongly opposed opening of retail units forcing Reliance Retail to shut up in Uttar Pradesh. 

Industry groups, which have been lobbying for years to open up the sector, cheered the government's decision. 

The first signs of the government's resolve to liberalise the sector was evident from the speed with which several ministries moved on the issue. Sources had told TOI that UPA chairperson Sonia Gandhi had given her nod to move ahead with reform in the retail sector. Prime Minister Manmohan Singh and finance minister Pranab Mukeherjee had also strongly backed the move. 

The government until now allowed 51% FDI in wholesale cash-and-carry where global players such as Wal-Mart and Carrefour are only allowed to sell to bulk customers such as hotels, canteens and even local retailers. 

A government panel headed by chief economic adviser in the finance ministry Kaushik Basu had recommended opening up the multi-brand retail sector and reforming the Agriculture Produce Marketing Committee Act (APMC) Act to tackle stubbornly high food inflation. Policymakers say foreign retailers will bring in technology and invest in setting up logistics chains and warehousing which will cut down on wastage and improve supplies. 

Global retail giants such as Wal-Mart, Carrefour, Tesco and others have been eyeing the lucrative sector for years. Several Indian retailers have said they are ready with plans to sell stakes to foreign firms if the valuations are attractive.