FDI in retail: the choice lies with state governments

New Delhi: The Government's decision on Friday to allow up to 51 per cent foreign direct investment in multi-brand retail comes with a clever move to diffuse potential opposition from UPA allies. The new policy clearly says that each state government has the right to decide whether to implement the policy or not.

For those of the UPA allies who are in power in the states – most notably, Mamata Banerjee's Trinamool Congress in West Bengal – this is a means to maintain their opposition to the policy in case they choose to. Similarly, even the constituents of the Opposition NDA who are in power in different states can choose to walk the talk by refusing to implement the policy in their respective states.

With this astute move, the Manmohan Singh Administration might effectively soften the voices of protest to the new FDI policy. The government has stated that it has received direct or indirect approval for the new policy from the chief ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Jammu & Kashmir and from the governments of Manipur and of Daman & Diu and of Dadra and Nagar Haveli. However, the governments of Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha have formally stated their opposition.

The new policy clearly says that each state government has the right to decide whether to implement the policy or not.

The loudest protests have already been articulated by West Bengal chief minister Mamata Banerjee, who has issued a 72-hour deadline for the Central Government to withdraw both the FDI policy and the hike in diesel prices. Here is what the official government statement has to say on the subject:

"In pursuance of the aforestated decision of the Cabinet on 7.12.2011, discussions have been held with State Governments, representatives of consumer associations/organizations, micro & small industry associations, farmers’ associations and representatives of food processing industry and industry associations. The Chief Ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana and Governments of the State of Manipur and the Union Territory of Daman & Diu and Dadra and Nagar Haveli, have expressed support for the policy in writing. The Chief Minister of Jammu & Kashmir, through his press statements, has publicly endorsed the policy and asked for its implementation. The State Governments of Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha have expressed reservations.

During the consultations with the stakeholders, views for and against FDI in multi-brand retail trading were expressed. On balance, however, the discussions generally indicated support for the policy, subject to the introduction of adequate safeguards.

Accordingly, the following proposals have been approved:

(i) Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in MBRT under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act etc.

(ii) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking."

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