The Indian government is likely to open its multi brand retail sector for foreign direct investment up to 51% with the clause of minimum 50 % of the total FDI proposed by an investor should be in back-end infrastructure. An inter-ministerial group headed by Kaushik Basu, chief economic advisor in fiancé ministry, has made recommendation that government should FDI in multi-brand retail sector to tame Inflation and cut the farm gate and retail price differences. Recently Kaushik Basu said, “It is time for India to allow FDI in multi-product retail and the inter ministerial group recommends that the government consider this at the earliest. We are taking a clear position on FDI in multi-brand retail for the first time. Of course, it is a recommendation, not policy."
According to the proposal of Department of Industrial Policy and Promotion (DIPP), at least 50 % of the total investment should be made for creating back end infrastructure, such as building coal storage chain and warehouses. A statement of accounts would be filed with the central bank and with a copy to the Foreign Investment Promotion Board (FIPB), disclosing that no point in time investment in back end infrastructure is less than 50%. Investment in such back end infrastructure can be done by other entity, specifically made for this purpose. The minimum investment to be brought into a project with multi brand retail would be $100 million. At least 30% of value of manufacturing items procured should be sourced from the SME (small and medium enterprises) sector.
Currently, India allows 51 % FDI in single-brand retail and 100% in wholesale cash-and-carry business. The global retailers like Wal-mart stores, Tesco and Metro AG and Carrefour are lobbying to put presser government to open its fast growing but restricted Indian retail sector that is dominated by local Kirana stores. Global retailers like Wal-Mart and Carrefour have already opened wholesale operations in the India. According to the DIPP, India received $ 128.34 million FDI in single brand retailing between April 2000 and January2011. At present more than 200 foreign brands are in India and total turnover of single brand retailing is estimated to be between $3 billion to $ 4 billion.
The Foreign Direct Investment is likely to increase the share of organized retail, investment in backend investment will reduce the wastages and it will also improve the productivity in retails sector. Currently, $400-billion Indian retail sector is dominated by the unorganized retailers or local Kirana stores.
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