The finance ministry is arriving at a consensus to reject a proposal mooted in government to permit foreign direct investment (FDI) in multi-brand retailing.
A top source in the ministry told Business Standard: "We believe that the time has still not come to allow FDI in multi-brand retailing. While the preparatory process can go on, the implementation of a change in policy should not take place now."
The source also made it clear that it is unlikely that any announcement of a liberalisation of FDI rules would be made during the visit of US president Barack Obama, who will be in India in November.
The finance ministry's decision will come as a major dampener to several international retail chains like Walmart, Carrefour and Tesco that have lobbied hard to get the government to open the doors to FDI in multi-brand retailing.
The department of industrial policy & promotion (DIPP), which is part of the ministry of commerce, has been pushing for the easing of FDI norms in retail. It had come out with a discussion paper on the contentious issue just a few months ago and had solicited the opinions of all stakeholders.
The DIPP favours permitting FDI in multi-brand retailing, but with some key restrictions. In its discussion paper, it suggested various options like permitting such retail chains only in cities with a population of over 10 lakh, fixing a minimum amount that they have to source from small-scale enterprises, and specifying minimum sales to small retailers through a wholesale window.
It had also suggested that such chains should hire 50 per cent of their employees from rural areas and at least 50 per cent of the money invested should be used to create back-end infrastructure such as cold chains and processing units.
The finance ministry has already set up an internal panel, which is studying the issue of FDI in multi-brand retailing.
From 2006, the government has permitted FDI up to 51 per cent in single-brand retailing. It has also allowed 100 per cent FDI under the automatic route in the cash & carry wholesale business.
Under this regime, the government has already cleared investments worth over Rs 8,900 crore (Rs 89 billion) in this sector, which constitutes only 2.75 per cent of the total FDI flows into the country from 2000 to May 2010.
Those opposing further liberalisation have contended that such a move would kill the country's kirana shops, as well as give foreign retailers an unfair advantage, as the domestic retailers are still in a nascent stage of development and need protection.
There have also been fears that given the retail sector is the second-largest employer in the country, many could lose their jobs. Those who support further liberalisation say investment in this sector has been limited, especially in areas like logistics and cold-chain development, which are key to the growth of agriculture.
They also argue that there are too many intermediaries and the small-scale sector does not have a competitive edge.
