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May 25, 2010 at 06:45pm IST

No decision yet on retail reforms: officials

New Delhi: The government may make its first tentative steps to opening up the organised retail sector to foreign companies, a reform seen as dealing with massive supply bottlenecks that have kept inflation stubbornly high, a senior official said.

The Commerce and Industry Ministry may issue a discussion paper on further opening up retail, currently restricted to wholesalers. But many obstacles remain and officials from two ministries said that the details of such a proposal are far from decided.

It may be just one of a series of discussion papers over the coming months to test the waters with different stakeholders to lift investment caps in sectors eagerly watched by investors, including retail.

No decision yet on retail reforms: officials

Opening up of retail sector to foreign companies is seen by many as a solution against inflation.

"Discussion papers including one on retail will be issued, but there is no decision yet on the contours of the retail paper," a top Commerce Ministry source told Reuters.

Global multi-brand operators such as Wal-Mart Stores and Carrefour have long coveted India's fast-growing but restrictive $ 450-billion retail sector, which is dominated by mom-and-pop shops. Organised retail accounts for just 6 per cent of the total.

The Economic Times newspaper reported on Tuesday that the Commerce and Industry Ministry may propose 100 per cent foreign direct investment (FDI) in multi-brand retail, but with local sourcing requirements.

"It is just speculative. We have only just released the paper on defence. Give that some time," said a source with direct knowledge of foreign investment policy in the Commerce Ministry.

An official at the Finance Ministry, which is a powerful player in setting economic policy, was also unaware of a Commerce Ministry proposal.

"At least we have not been informed," a top Finance Ministry source, who did not wish to be named, told Reuters.

India's retail sector is largely closed, with 51 per cent foreign direct investment allowed only in single-brand retail.

Global giants like Walmart have argued for opening up retail to reduce supply chain inefficiencies in the agriculture sector. With food price inflation still hovering above 16 per cent, this could be one of the reasons for the talk on the discussion paper on retail.

Walmart is already present in India through cash-and-carry stores supplying in bulk to fuel Indian giant Bharti's retail stores, but it wants to enter India's retail market.

But piloting a proposed paper on retail, which had raised the heckles of the leftist parties, is not going to be easy. It needs the support of other ministries like Consumer Affairs and Finance prior to it being discussed in the cabinet.

Though the government can take the bold decision on going ahead with opening up multi-brand retail through executive orders, the government's managers know this could face severe political backlash.

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