Wal-Mart's India Dream Hits FDI Wall
Rajeev Jayaswal
The Economic Times
July 5, 2006

NEW DELHI: Wal-Mart's India dream may lie in tatters with the government intending to put FDI in retail on the back burner.

Government may now rely on domestic entrepreneurs such as Reliance, Bharti and Pantaloon in modernising Indian retail sector instead of seeking foreign investments.

A senior minister in the UPA government confirmed that applications for even single brand retail entries may face hurdles. It is understood that decision to review FDI policy in retail sector is mainly due to the stiff opposition from the Left parties as well as a strong section within the Congress.

Wal-Mart and other global retail majors had been told by the government that they will be allowed to invest subject to certain stringent conditions.

Now, even that appears to be in doubt. “Our purpose is to develop a modern retail sector in the country. Companies like Wal-Mart would set up limited number of stores in major metros, whereas Indian firms (Reliance) would open 350 stores at a time.

This would help in creating necessary infrastructure including developing an efficient supply chain and marketing network. Our objective is to modernise retail sector and not to allow FDI in retail,” a senior government official said.

The Indian market is still not closed to foreign retail firms. “They can also follow cash & carry wholesale trading route where 100% FDI is allowed,” an official added. The change in government's strategy is also reflected in the approach paper to the Eleventh Five-Year Plan (2007-12).

The paper, released recently, is silent on the issue of FDI in retail. Interestingly, the same Planning Commission, had made a strong case for allowing FDI in modern retailing few months ago in the Mid-Term Appraisal (MTA) of the Tenth Five-Year Plan.

FDI in retail was identified as one of the key 'action points' emerging from MTA and the Planning Commission was asked to prepare a 'simple note' on the issue. A Indian Council for Research on International Economic Relations (ICRIER) study also suggested that FDI is required in retail sector.

The study was commissioned by the ministry of consumer affairs, food and public distribution. Accepting that there is a shift in government's strategy with regard to FDI in retail sector, a Planning Commission source said: “Modern marketing and the involvement of corporate entities buying directly from farmers for retail domestic marketing, agro-processing and exports will have to be encouraged if agricultural diversification is to take place.”

“But this does not necessarily require FDI,” he added.

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