India took an important step towards opening up its $450 billion retail sector to foreign players such as US-based Wal-Mart, a move seen aimed at tackling supply bottlenecks and high food price inflation.
A majority of members of a committee of top bureaucrats, set up to evaluate opening up the multi-brand retail sector — or stores which sell more than one brand — agreed on Friday to recommend to the cabinet allowing foreign firms to take a 51 per cent stake in such enterprises, sources told Reuters.
Global retailers such as Wal-Mart Stores Inc , Carrefour SA , Tesco Plc and Metro AG have long sought greater access to the fast-growing but restrictive Indian retail sector, which is dominated by small family-run outlets.
India currently allows 51 per cent foreign investment in single-brand retailers and 100 per cent of wholesale operations.
The committee’s recommendations are not binding, however, first needing approval of the cabinet. A final policy decision also needs to navigate a minefield of political opposition, both inside and outside the ruling coalition.
A senior government official present at the meeting said ministries were yet to agree definitively on whether India should allow up to 51 or 49 per cent of foreign investment, though the majority agreed to recommend 51 per cent.
“In general there is a feeling that we can open, we should open,” said the source, a top bureaucrat in one of the ministries.
The policy has been in the works for years but has been fiercely resisted, especially by opposition parties, citing fears over huge job losses among small shopkeepers.
Any final policy decision will also likely contain conditions for foreign firms such as a minimum investment in back-end infrastructure and riders on how goods are sourced.
A second source said there was a difference of opinion on the exact nature of such conditions. The main conclusions from Friday’s meeting will go to various ministries for consultation.
No timeline was mentioned as to when a final policy note would be submitted to the cabinet for approval.
Friday’s announcement comes at a time when the government has showed signs of shaking itself out of a near policy standstill. Prime Minister Manmohan Singh’s government has become bogged down in graft scandals for months that spooked investors and stymied decision-making.
There has been movement on implementing India’s most ambitious indirect tax reform, aimed at slashing business costs and enhancing government revenue. The government also ended months of dithering by raising diesel, cooking gas and kerosene prices in June.
Reformists in the government and business leaders say opening up India’s supermarket sector to foreign firms would improve chronic supply and distribution bottlenecks that lead to 40 per cent of fresh produce going to waste.
The government does not need parliament’s approval for the move, but is seeking political consensus to avoid any possible fall-out, having faced mass protests over corruption and soaring prices in the past year.
High inflation is pushing the Singh administration towards liberalising rules for the multi-brand retail. Supporters say foreign money would ramp up investment in logistics such as cold storage and unclog supply bottlenecks.
The consumer affairs ministry is among those in favour of granting only a minority investment stake to foreign companies, a third source told Reuters. It also wants any investment by a foreign firm be worth at least $100 million.
The ministry wants a commitment from foreign retail players to invest in back-end infrastructure, the source said.
They also want foreign access to be restricted to towns and cities with a population of 1 million or more, and for the introduction of foreign players to be phased in, aiming to protect family-run outlets in smaller towns for as long as possible, the source added.