Cabinet to take decision on FDI in multi-brand retail sector as early as next week

The union cabinet is expected to decide within weeks whether to allow multinational retailers like Wal-Mart and Carrefour to operate in India with a majority stake. A decision on the issue is possibly only a matter of weeks as the cabinet will take a decision as early as next week.

The ministry of finance has been pushing for allowing 51% foreign direct investment (FDI) in multi-brand retail sector. The issue to allow FDI in retail sector has been in works for years however because of political disagreement the important policy reform has been getting delayed. Presently, India allows 51% FDI in single brand retailers and 100% for wholesale operations.

In the backdrop of a sluggish economic environment on global and domestic front, government is struggling to shake off an image of policy paralysis hence the momentum to open up the multi-brand sector too have picked up.

However, the issue is politically sensitive as the proposal of FDI in sector has been opposed by the smaller retailers. The small shop owners or kirana stores, which account for more than 90% of India’s $450 billion retail sector, have been opposing the entry of multinationals, fearing that they will be put them out of business.

In July 2011, the Committee of Secretaries approved the proposal to open the sector to foreign players. However, it recommended strict local sourcing requirements and minimum investment levels. These strict restrictions were backed by finance ministry.