FDI in retail just a matter of time: FM

The government may open the retail sector to foreign investment after convincing stakeholders like small shop owners that their setups are not at threat from big players. "In course of time, their fears will be allayed and it is only a matter of time before the policy is tweaked to allow FDI in retail," Finance Minister P Chidambaram said during an interaction with students of Wharton School of the University of Pennsylvania here, reports ET. Mr Chidambaram’s statement comes even as large domestic retail chains are facing opposition from mom-and-pop stores in some states.

Opposition to the opening up of $ 330-billion retail sector has come from various political quarters, and more vehemently from the key UPA ally, the Left parties. In fact, even Congress president Sonia Gandhi had expressed reservations against opening up of the sector. "Experience tells us (organised) retail does not drive them (small retailers) out. They will reorganise themselves and thrive. However, there is genuine fear that has to be allayed," Mr Chidambaram said.

The finance minister added, “We will patiently educate them (mom-and-pop store owners) before they accept retail chains. This (opening retail to FDI) will take a little time."

The government allows 100% foreign direct investment in cash-and-carry and wholesale operations and 51% in single-brand retail. It may be noted that some multinational players like Wal-Mart, who had for long waited for the sector to be opened up, have since joined hands with domestic companies as their cash-and-carry partners.

India has been ranked World No, 1 in the AT Kearney Global Retail Index, 2006, and according to industry estimates, the organized and unorganized retail market will grow to $ 427 billion by 2010 and $ 637 billion by 2015.

"Competition is driving growth in many other sectors: steel, textiles, pharmaceuticals, automobiles, home appliances, packaged food, computer hardware and software, banking and insurance. It is axiomatic that more openness and more competition will benefit the sectors that remain closed or restricted as a matter of policy, and that is the direction in which we would like to move," he said speaking at the Peterson Institute.

India’s manufacturing and services sectors face increasing competition from overseas manufacturers and service providers. Far from being overawed or vanquished, Indian business has boldly ventured into other countries and has opened offices abroad, acquired factories and established new facilities, he pointed. "Foreign direct investment has become a two-way street. In 2006-07. While foreign direct investment flows into India were $ 19.5 billion, the outflow of capital amounted to $ 11.9 billion," he said.

Noting the India story is now well known, he said the outlook for the medium term remained extremely positive. "We believe it is possible to sustain the factors that are driving economic growth and consolidate the gains," he said. India’s GDP has been growing, on average, at the rate of 8.6% since 2003-04. In particular, 2006-07 was a splendid year that returned a growth rate of 9.4%.

He said corporate balance sheets were now much larger and corporate profits higher, giving Indian businesses the financial muscle to take on new challenges. "Valuations have soared, enabling companies to raise large amounts of equity capital," he said driving home the point on India growth story.

However, he said inflation, particularly in food articles, was a concern. "3.32 % is perfectly acceptable, tolerable. But one component of WPI, primary articles’ inflation, was 7.5%. Within primary articles, food is 5.8%. This is a worrying inflation," he said.