FDI in Multi Brand Retail Sector - Discussion

[nrj]

New Delhi: The Union cabinet is expected to approve 100% foreign direct investment, or FDI, in single-brand retail and 51% in multi-brand when it meets on Thursday.

The approvals, however, will come with riders, according to the agenda note.

The Companies Bill 2011 will also be taken up for discussion, says the note, a copy of which Mint has reviewed.

In the case of multi-brand retail, fresh agri produce cannot be branded and 30% of the inputs have to be sourced from small enterprises. Multi-brand entities will have to bring an investment of $100 million (Rs. 500 crore).

As for FDI in single-brand entities, retail presence has to be directly through the owner.

In July, a committee of secretaries (CoS) headed by cabinet secretary Ajit Kumar Seth gave its approval for 51% FDI in multi-brand retail.

It recommended $100 million as the minimum FDI and said at least half of the foreign investment should be put in back-end infrastructure.

CoS also suggested that multi-brand stores source 30% of the value of their procurement of manufactured items from small and medium enterprises.

Goldie Dhama, associate director, PricewaterhouseCoopers, said the entry of multi-brand retail is a win-win for all—existing retailers, consumers and farmers.

"One, there will be substantial investment in back-end logistics such as cold and supply chains, lack of which results in a wastage of 30-40% of the total produce; two, consumers will be spoilt for choices and will benefit greatly from deals common to such chains; three, farmers will get a wide choice to sell as multi-brand retails are expected to source directly from them," said Dhama.

FDI in multi-brand retail, he expects, will also help ease inflationary pressures and result in large-scale employment with better remuneration.

An inter-ministerial group set up by Prime Minister Manmohan Singh and headed by chief economic adviser to the finance ministry Kaushik Basu had backed FDI in multi-brand retail, holding it will help in moderating the high level of food inflation in India.

Retail chains, too, say the entry of FDI in multi-brand retail will benefit the sector.

"The Indian market is very large. A $100 million investment in back-end for a serious player, who wants to make an impact and create a supply chain, is not much. The investments required are much larger," said Ajay Sheodaan, customer management director, Metro Cash and Carry India Pvt. Ltd.

Metro was the first large global retailer to enter India when it started a fully owned subsidiary in 2003. The German firm operates eight wholesale stores in India, and earlier this month, it announced plans to open 8-10 stores in the country annually in the next four years, with an investment of around Rs. 2,400 crore.

"The government has held extensive stakeholder discussions before forming these criteria. They are agreeable and should not meet with any resistance from international retailers," said Thomas Varghese, chairman of the Confederation of Indian Industry's national retail committee and chief executive of Aditya Birla Retail Ltd.

If the cabinet decides to approve FDI in multi-brand retail, the decision will come five years after it allowed 51% FDI in single-brand retail and 100% FDI in wholesale retail through the automatic route.

"Allowing single-brand retailers only through ownership is a continuation of existing policy and on expected lines," said Dhama.

Global retailers such as Wal-Mart Stores Inc., Carrefour SA"‹, Tesco Plc"‹ and Metro AG"‹ have long been waiting to enter the lucrative Indian market.

India, however, was unable to put together a consensus on allowing foreign investment in multi-brand retail because of concerns that this could wipe out small family-run stores.

The cabinet is likely to approve the draft of the long-awaited Companies Bill 2011. The proposed law is aimed at making companies more accountable, while making it easier for them to do business with less regulation. The Bill, once passed by Parliament, is also expected to check fraud more effectively.

The Bill was discussed in the cabinet last month, but sent back to the ministry of corporate affairs, or MCA, to incorporate some changes.

"The ministry was asked to align a couple of discrepancies in the Companies Bill with that of Sebi (Securities and Exchange Board of India) Act, which have been taken care of," said an MCA official who did not want to be identified.

Cabinet likely to approve FDI in multi-brand retail - Economy and Politics - livemint.com

 

[Dovah]

The Left and BJP are united against this, lets see what happens.

 

[Ray]

It will wipe out the small time traders.

 

[nrj]

Its unlikely that Left will agree. BJP is flexible as long as they are kept in loop.

 

[Ray]

I thought the BJP which has evolved from the Jan Sangh is basically a traders party!

 

[nrj]

FDI if retailers procure 30% stuff from small industry

Indian suppliers must be units with investment up to Rs 1.25 cr, says draft before cabinet.

Multinational retailers such as Walmart, Tesco and Carrefour looking to open stores in the country may have to source almost a third of their merchandise from small Indian manufacturers as the government tries to make the opening of multi-brand retail to foreign players more politically palatable.

WHAT THE DRAFT SAYS

ON FDI IN MULTI-BRAND RETAIL

* Government permission for up to 51 per cent

* Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded

* The minimum amount fixed for a foreign investor is $100 million

* At least 50 per cent of the total FDI must be invested in 'back-end infrastructure'

* At least 30 per cent of the procurement of manufactured and processed products should be sourced from 'small industry'

* Compliance through self-certification. Investors need to keep all records

* Retail sale locations can be set in cities with more than one million population, based on the 2011 census

* The government will have the first right to procure agricultural produce

ON FDI IN SINGLE-BRAND RETAIL

* Permission of up to 100 per cent FDI from 51 per cent at present

* Products to be sold should be of single brand only

* Products should be sold under the same brand name internationally

* Product retailing would cover only those brands which are branded during manufacturing

* The foreign investor should be an owner of the brand

* 30 per cent sourcing from 'small industries' would be mandatory

The draft cabinet note for permitting 51 per cent foreign direct investment (FDI) in multi-brand retailing, which may go for cabinet approval as early as tonight, includes a new clause under which at least 30 per cent of the procurement of manufactured and processed products has to be from 'small industries'. Even single-brand retailing, where FDI is proposed to go up from the current 51 per cent to 100 per cent, will also be subject to the same sourcing rules. The note also clearly defines the FDI investment floor, approval dynamics, geographical restrictions and the riders and conditionalities thereof.

For the purpose of FDI in multi-brand retail, the note defines small industries as units which have a total plant and machinery investment not exceeding $250,000, approximately Rs 1.25 crore. This investment refers to the value at the time of installation, without providing for depreciation. However, if at any point, this valuation is exceeded, the unit will not qualify as a 'small industry' for the purpose of the policy. However, self-certification for compliance of this clause will be permitted and the government would undertake cross-checking if it wants to.

The draft cabinet note on FDI in multi- and single-brand retailing has been prepared by the Department of Industrial Policy and Promotion or DIPP after extensive consultations with various ministries. "We are sending the cabinet note on both FDI in single-brand and multi-brand retail by late tonight. All major ministries have given their recommendations on the draft note. Now, it is up to the cabinet to take a call," a senior DIPP official told Business Standard. Currently, FDI is not allowed in multi-brand retail, though 100 per cent foreign investment is permitted in the cash-and-carry wholesale business and 51 per cent in single-brand retailing.

The new clause on sourcing from small industries was not part of the recommendations to allow FDI in multi-brand retailing cleared by the committee of secretaries (CoS) in July. The CoS recommendation did not include it because of concerns raised by the finance ministry's department of economic affairs, which felt it could lead to harassment of small industries by government inspectors. Back then, even the DIPP went along with the view that including the mandatory sourcing condition would not be compliant with India's commitment under the World Trade Organisation's agreement on trade-related investment measures.

The sourcing clause, however, was reinserted in the current draft after concerns were raised by the ministries of agriculture, micro, small and medium enterprises, and the department of information & technology. They had concerns over the interests of farmers, the industries of food processing, electronics and textiles, and small and medium enterprises. In meetings to resolve these concerns, the ministry of agriculture suggested a provision be included for 60 per cent sourcing from 'low-income resources and poor farmers'.

The IT department wanted a clause for 30 per cent domestic sourcing and similar concerns were raised by the textiles and food processing ministries.

Subsequently, a consensus on the exact contours of the draft note was arrived at, and it was decided by DIPP an objective criterion for what constituted a 'small industry' would be defined so as not to violate the country's WTO commitments. Though the agriculture ministry was in favour of inserting a condition these retailers sourced fresh produce like vegetables and fruits only from 'poor local farmers', the consensus view was it was unlikely big foreign retailers would go for large-scale imports for cost reasons. Therefore, it was felt there was no need to spell such a conditionality upfront in the policy draft.

The draft, however, more or less endorses most of the other conditions in the CoS recommendations such as allowing 51 per cent FDI in multi-brand retailing only with government approval, with the minimum amount to be brought by the foreign investor at $100 million, and at least 50 per cent of the total FDI to be invested in 'back-end infrastructure'.

In order to remove any anomaly the draft clearly defines what constitutes 'back-end'. It includes investment made towards processing, manufacturing, distribution, design improvement, quality control and packaging, amongst others. However, the cost of land and rentals are excluded for this purpose. The calibrated approach for FDI is reflected in the clause that FDI will be allowed only in cities with a population of more than one million as per the 2011 census and may also cover an area 10 kms around the municipal limits of such cities. There are 51 cities with a population of more than one million, based on the 2011 census, and that provides foreign retailers a substantial scope for expansion. Another rider proposed in the CoS deliberations — reservation of a minimum percentage of jobs for the rural youth — has also not been included in the note.

While it has not added any clause that permission from state governments will be required (again proposed in the COS deliberations) the draft note makes it clear retail locations will be restricted to conforming areas as per the master or zonal plans of the concerned cities and a provision has to be made for requisite facilities such as transport connectivity and parking.

The government in the draft has also inserted some key conditions for allowing 100 per cent FDI in single-brand retail. So only products sold under the same brand name internationally will be allowed. Product retailing would cover only those products that are branded during manufacturing and the foreign investor should be the owner of the brand. The government decided to hike FDI in single-brand retail after it was clear the current policy had not been very attractive. From February 2006, when the government allowed 51 per cent FDI in single-brand retail, to August 2011 FDI proposals through the route worth $137 million were cleared. But, actual inflows of only $44.55 million have come, accounting for only 0.03 per cent of total FDI inflows.

FDI if retailers procure 30% stuff from small industry

 

[nrj]

FDI in multi-brand retail key reform for economy: FICCI

The government seems to be moving with some degree of spree as far as FDI liberalisation is concerned. It is learnt from sources that the final cabinet note on retail foreign direct investment (FDI) is likely to be issued next week .

Rajiv Kumar, Secretary General, FICCI feels that it is high time that the government should finalise the policy on permitting FDI in multi brand retail.

Speaking to CNBC-TV18, Kumar said that FDI in multi brand retail is a very crucial reform for the Indian economy. If it comes through Kumar hopes that opposition party and rest of the political spectrum will not become an impediment to this.

"When it happens, we will see that states are given the opportunity to take it forward as they would like rather than being given some sort of a uniform package, Kumar added.

Below is the edited transcript of Kumar's interview with CNBC-TV18. Also watch the accompanying video.
Q: A cabinet note on retail FDI which we understand will be finalised shortly. Given all of this do you think that the government is finally getting its act together and moving with a new sense of determination on second generation reforms?

A: I very much hope so. My hypothesis has been that in our country the gestation period for a reform is seven years from the day the idea is conceived to the day it is implemented. FDI in retail has even crossed that time period.
So, it is high time that the government does finalise the policy on permitting FDI in multi brand retail. I have seen the news that the CoS has approved it and that 51% FDI is very much on the cards. I do hope that when the final version comes out we will see that all those other conditions that had been stipulated earlier would have been done away with.

I am really very glad to hear about the FDI in multi brand retail being finally out. If it does happen, there are two things I hope. Firstly, the opposition party and rest of the political spectrum does not become an impediment in this because it's a crucial reform for the Indian economy.
Secondly, when it happens, we will see that the states are given the opportunity to take it forward as they would like rather than being given some sort of a uniform package. Every state would like to do it differently.

Q: The cabinet has approved the PFRDA Bill and in doing that it has retained the flexibility to hike FDI in the pension sector beyond the 26% disregarding the advice of the standing committee on finance in the process. We do seem to be seeing a new determination to move ahead on politically sensitive subjects, would you agree?

A: I am actually thrilled about this. I see a sense of determination and a sense of finally the attempt to push the reform is in the forward. Nothing could be better for me. It's music to my ears and for the industry as a whole. I am sure that such measures would reverse the doom and gloom scenario that we have had in the industry and economy for a while.

I hope therefore that the PFRDA Bill will go through, will be placed in the Parliament in the winter session. It will not have the caps because at least we need 49% FDI in the pension firms that are there. It is one thing to clear the bills and put them in the Parliaments and the other step is to get them passed.

This requires a very deft political movement and political handling. This is because what we don't want is for the situation that when the bills are there in the Parliament and then the government throws up its hand to say that what can we do? We don't have the necessary political support for it.

The second stage of this very important agenda is to garner necessary political support. We in the industry have promised to the government and ourselves that we will do whatever is required to try and mobilise necessary political support for important bills like FDI in retail, FDI in aviation and the PFRDA Bill.

Q: But this good news is being dampened by another thing that what we have heard as far as the Direct Taxes Code is concerned and this has to do with the parliamentary affairs ministry saying that the DTC Bill will not make it to the winter session implying quite clearly that the 1st April 2012 rollout is not going to happen. Now that also puts into jeopardy the rollout of the GST. Does this mean that there is still some distance to go on tax reforms even though FDI liberalisation maybe picking up pace?

A: That's indeed true. For me the GST is a far bigger, far more crucial and far more important measure than the DTC because that is simply cleanup, very necessary though. It will clean up the Direct Tax Code but the GST is a real fish to go for and we are scheduled to meet the chairman of Empowered Committee Modi later on this month.
We have been emphasizing to him the importance of that bill for the Indian industry to become globally competitive and for the Indian market to be integrated.

I wish and I really hope and plead to the government and all political parties that this is one bill that they should really pursue with as much vigour. That will just bring about the whole paradigm shift in our country as far as indirect taxes are concerned.

FDI in multi-brand retail key reform for economy: FICCI - CNBC-TV18 -

 

[Ray]

The German Metro retailer was prevented from opening in Kolkata by the unions and some political parties.

Finally, they were allowed and sale was permitted only to those with trade licences and minimum purchase being Rs 5000.

 

[nrj]

Just a whisper on FDI in retail & Pantaloon stocks jumped 8% couple of days back.

Cabinet discussions are supposed to take place tomorrow.

And what Montek Singh talking about? He's not in loop now? MMS sidelined him?

 

[nrj]

Didi will also oppose this move along with others. Will corporate lobby win over political opposition? Very tricky situation indeed. Its not that Retail FDI will immediately trigger economic recovery but end consumers will benefit for sure.

 

[SHASH2K2]

I feel some intense lobbying is going on to allow FDI in retail sector by would be Indian partners of those giant retail chains. I am sure Ambanis and Mittals would be watching these events very closely.

 

[The Messiah]

This should not pass.

 

[nrj]

RIL was forced to rollback its grand retail outlet plans in 2007.

Almost half of the fruit & vegetable production in India is wasted due to poor distribution networks and lack of cold storage facilities. Why consumers should bear those higher costs? Why small traders not focusing on such problems? More competition means less margin to traditional players but clear benefits to consumers.

 

[mayfair]

It will wipe out the small time traders.

I am curious to know if retail brands like Big Bazaar, Reliance, Subhiksha (which itself got wiped out) etc. were unable to wipe out the mom and pop stores and corner shops (most of whom pay no or little taxes and indulge in fair amount of adulteration), how will bringing in WalMart, Carrefour, TESCO and Sainsbury, lead to their demise?

It will not be easy for these folks, land is prohibitively expensive in cities and overseas, their business model relies on hyperstores in the outskirts and small to medium sized stores in the cities. The hyperstore model in turn is highly dependent on supporting infratsructure and transport links and is doomed to failure from start in India.

 

[nrj]

FDI in retail cleared by GOI !

51% in Multi-brand & 100% FDI in single brand retail now.

Thanks TR for news

 

[Galaxy]

Cabinet clears 51% FDI in multi-brand retail - NDTV Profit

 

[Pintu]

Cabinet cleares 51 percent FDI in multi-brand retail - Money - DNA

Cabinet cleares 51 percent FDI in multi-brand retail
Published: Thursday, Nov 24, 2011, 20:40 IST | Updated: Thursday, Nov 24, 2011, 20:40 IST

The much debated 51 per centFDI in multi-brand retail was today cleared by the parliament, a move which will pave the way for opening of global retail stores like Wal-Mart,Carrefour and Tesco in major Indian cities.

India will open the country's retail industry to foreign supermarkets, a cabinet minister told reporters on Thursday, a much delayed reform expected to help unclog supply bottlenecks and ease inflation over time.

BJP and other political parties including UPA allies had opposed the move.

It also raised 100 per cent FDI in single-brand retail which has the same brand globally.

 

[thakur_ritesh]

FDI in retail cleared by GOI !

51% in Multi-brand & 100% FDI in single brand retail now.

Thanks TR for news

best news on the economy front i have heard in a long time.

hope this is just the first one, and many more to come before next year.

 

[SHASH2K2]

best news on the economy front i have heard in a long time.

hope this is just the first one, and many more to come before next year.

Best news of worst news only time will tell .

 

[nrj]

No retail chain can compete with kirana dukkan.

Wholesale traders will face the competition for the good of consumers. And it is the same class which is BJP's financial backbone in small towns.

Compete or Perish!