Multi-brand retail FDI may get green signal this year

The government may allow foreign direct investment (FDI) in multi-brand retail this year to help the struggling domestic retail sector to get much-needed funds. This was hinted by the Economic Survey, an indicator of government’s policy intentions. The country’s retail sector is hit by weak consumer sentiment, tight credit situation and unhealthy cost structures. “FDI in multi-format retail, starting with food retailing. Initially this could be subject to setting up a modern logistics system, perhaps jointly with other organised retailers. A condition could also be put that it must have (for 5 years say) wholesale outlets where small unorganised retailers can also purchase items (to facilitate transition),” says the Survey. Kishore Biyani, CEO of Future Group, the country’s largest retailer, said the recommendation reflects the government’s belief that modern retail were to play a larger role in bringing down consumer price inflation. It’s not clear why the Survey has mentioned multi-format and not multi-brand retail in its statement, but Pinakiranjan Mishra, Partner & Industry Leader, Retail, Ernst & Young, says a multi-format would pretty much cover multi-brand. The survey’s choice of food retailing as the first step for FDI in multi-format retail signifies that the government may be intending to create an efficient supply chain in an area that lacks it most unlike other sectors such as FMCG products and apparel. Food retailing also attracts maximum opposition, as much as it benefits maximum number of people in terms of producers and consumers. Mr Biyani, who is looking at inducting foreign equity in his listed Pantaloon Retail, says the government should first raise the limit of FII investment in retail companies from 24% to 49%, before allowing FDI. “This would be good news for large foreign retailers who have entered India with the cash & carry model and plan to get into retail,” says Mr Mishra. -Courtsy Economic Times