Govt hints at removing FDI cap in retail

Finance minister P Chidambaram has hinted at opening up of the retail sector to foreign direct investment after addressing concerns of all stakeholders.

"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.

Mr Chidambaram's statement comes even as big domestic retailers like Reliance are facing stiff protest from the small players. Reliance was forced to close stores at many of the centres across the country in the last week.

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.

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.

Commerce and industry minister Kamal Nath said the government will ensure there are no job losses in the retail sector. He, however, acknowledged that the issue of foreign direct investment in the retail sector is a contentious issue and it was the duty of the government to ensure that there are no job losses due to the entry of foreign players.

"FDI in retail is a contentious issue. A huge workforce is employed in the unorganised retail sector, and the government has to ensure that FDI does not result in displacement of employment. However, it's not just about FDI. The real issue is big-versus-small retail," the minister said in New York.

He said the country needed the logistic and supply chain expertise that companies such as Wal-Mart possessed. "Wal-Mart has come to India for carrying out wholesale or B2B operations. I think it will find the B2B opportunity in India is bigger than the retail opportunity in many countries. India is also a big sourcing destination for Wal-Mart," he said.

India Inc needs an investment of $ 492 billion in the infrastructure sector between now and 2012 to sustain and achieve a 9% GDP growth in the 11th five year plan, out of which about $ 240 billion would have to be raised through debt, Planning Commission deputy chairman Montek Singh Ahluwalia said.

The catch is: while on a "business as usual" basis, India will attract infrastructure investment worth $ 280 billion in this period, almost $ 240 billion will have to be raised in the form of debt. Moreover, this money will have to be raised in the form of debt with the private sector's debt mobilization requirements being $ 100 billion, he said.

For this, India will have to create a strong debt market, liberalise lending norms, and undertake financial sector reforms.

"We don't have a strong debt market and financial sector reforms have been delayed," admitted Mr Ahluwalia. According to Planning Commission estimates, $ 252 billion could be raised through equity, internal accruals, and budgetary allocations. Earlier, Mr Ahluwalia said the $ 492 billion investment projection was made on the basis of the investment in the infrastructure sector rising from the current level of 5% of GDP to 9% in 2007-12.

According to the commission, around 70% of these investments should come from the public sector while the remaining 30% will have to come from the private sector.

The $ 492-billion infrastructure investment projection represents a significant increase over the estimated $ 200 billion, invested in the 10th Five Year Plan. However, Mr Ahluwalia said that given the current mechanism of funding in the sector, there is a huge gap of around $ 39 billion.