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FDI in Retail: Misplaced Expectations and Half-truths

The central government claims that allowing foreign direct investment into India's retail sector will benefit small farmers, expand employment and lower food inflation. What has been the experience in India with organised retail so far and what has been the global experience with FDI?

After being under relentless attack for a week, the United Progressiv Alliance government was forced to “put on hold” its decision to allow 51% foreign direct investment (FDI) holding in multi-brand retail trade (MBRT) and raise the FDI ceiling from 51% to 100% in single brand retail trade (SBRT).

It was an executive decision taken by the union cabinet on 24 November without any discussion in Parliament or consultation with various stakeholders, despite the fact that the issue had been hanging fire for the last 15 years ever since 100% FDI in wholesale cash and carry trade was permitted in January 1997 on a case-by-case basis. After that, the N K Singh Committee on FDI in retail trade in 2002 suggested the ban be continued, which led to the Tenth Plan dropping the proposed recommendation on FDI in retail trade. Metro – a German supermarket chain – was the first one to enter India as cash and carry wholesaler in 2003 with a store in Bangalore. Then, in early 2006, 51% FDI in SBRT was allowed. Since 2007, all the major wholesale cash and carry players like Walmart, Metro and Carrefour have set up shop in India and have multiple outlets ranging from two in the case of Carrefour to as many as 14 in case of Bharti-Walmart (Mookerji 2011). Reliance Retail has also made an entry into wholesale sector with a store – Reliance Market – in Ahmedabad a couple of months ago. Global retail chains have also been present in India in retail through licensing/franchising arrangements like SPAR (a global supermarket with more than 12,000 stores in 33 countries) has a licensee and Max Hypermarkets of Dubai-based Landmark Group which operates 10 stores in India (Images Retail, December 2011). Under this arrangement, a domestic player buys a licence/franchising right for a fee from a global brand owner and there is no FDI involved.

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