India and Retail FDI

The government, this year, threw open India’s 30 lakh crore retail sector to foreign investors, in a bid to curb inflation and to unclog supply chain bottlenecks. The mandate allows for 51 per cent investment in multi-brand retail and 100 per cent in single brand retail, paving the way for global companies such as Wal-Mart and Tesco to own stores in the country.

Brands like Ikea will be available with FDI in retail

The policy has been prepared after 18 – 20 months of broad consultations with all the Indian states and stakeholders such as farmers unions, consumers and retail associations. "The decision on allowing FDI in retail was not taken in any hurry, but well considered," Prime Minister Manmohan Singh said, adding that investment rules would protect small businesses. The opposition has been widely protesting the government’s move, citing job loss for traders and farmers as a reason. Trade Minister Anand Sharma, however, said the government's new policy would allow foreign supermarkets into the country, creating 10 million jobs over three years, while not affecting smaller, domestic retailers.

Opposition leaders have been demanding a rollback, perhaps fearing this move would favour the Congress in the next election. Even UPA allies Trinamool Congress and the Dravida Munnetra Kazhagam, along with the Samajwadi Party and the Bahujan Samaj Party, which lend outside support to the government, demanded that the decision should be revoked.

The otherwise weak PM, strongly defended the Cabinet’s decision and ruled out a rollback. Manmohan Singh said he was confident that FDI  in India's retail sector would benefit all as "this will bring modern technology to the country, improve rural infrastructure, reduce wastage of agricultural produce and enable our farmers to get better prices for their crops... consumers will get commodities of daily use at reduced prices."

Singh’s move has been widely appreciated globally. A US diplomat said that FDI in retail would help in bringing down prices of goods for the consumers but also provide good, stable prices for the farmers for their produce.

Both houses of parliament have currently reached an impasse and at the time of this post, the government is looking for ways to break the deadlock.