India Opens Debate on Foreign Investment in Retail

July 7, 2010 Posted by India Briefing Reading Time: < 1 minute

Jul. 7 – The Commerce and Industry Ministry released a discussion paper on Tuesday that considers removing barriers hindering foreign investment in the retail sector.

Currently, only 51 percent of foreign direct investment is allowed for single-brand retail while multi-brand retail is limited to cash-and-carry branches. It is now being proposed that large-scale investment in the retail section may help ease the country’s rising inflation rates and make supply chains more efficient.

“Watch this space,” a ministry source told Reuters prior to the discussion paper’s release. “Something is definitely happening in multi-brand retail that was not happening even a year ago.”

The paper signals that authorities are more willing to make sweeping reforms in sectors still restricted from foreign investment. There has been an earlier paper released that proposes allowing up to 74 percent foreign direct investment on defense equipment.

The new paper also looks at the options of either requiring minimum local sourcing requirements for retailers or setting a condition that 50 percent of foreign investment must go to back end infrastructure. “Keeping in view the large requirement of funds for back-end infrastructure, there is a case for opening up of the retail sector to foreign investment,” the paper reports.

“Some movement on retail is better than no movement,” said Rajiv Kumar, head of the New Delhi-based think-tank ICRIER. “Finally it’s dawning on the government that food price inflation can be tackled. One way to tackle food price inflation would be to modernize the post-harvest logistics and supply chain, and retail can contribute to that.”