7.

ISSUES FOR RESOLUTION If so, should a cap on

7.1 Should FDI in multi brand retail be permitted? investment be imposed? If so, what should this cap be?

In India, the Retail Sector faces several Supply Side constraints and challenges. In contrast, the Demand Side already offers huge opportunity to boost consumption and growth of the economy. A thriving modern retail sector is a necessary condition for growth led by domestic consumption. One of the most critical of those supply side bottlenecks is the current restrictions on FDI in Multi Brand Retail. FDI should be permitted, since the benefits far outweigh any potential threats. Every stakeholder will eventually benefit from FDI consumers, Indian modern retailers, producers, farmers, the supply chain, employees and even the small retailers. Its time for the Government to act and open up the sector NOW, without any further delay or debates. We have already lost some 10 years in this meaningless debates and protests from groups with clear vested interest. We should realise that the opportunity cost of an efficient and modern supply chain is high and there will be a time lag between the liberalisation of policy and realisation of efficiencies in the supply chain. Ideally there should not be any cap at this stage, given we have already lost quite a bit of time.but if one has to be sensitive to the so-called political concerns, then a calibrated opening is fine, but starting with a minimum of 51% (such as the single-brand policy). 7.2 To develop the retail trade in food grains, other essential commodities and multi-brand retail in general; should FDI be leveraged for creating back-end infrastructure? To ensure that foreign investment makes a genuine contribution to the development of infrastructure and logistics, should it be stipulated that a percentage of the FDI coming in ( say 50% ) should be spent towards building up of back end infrastructure, logistics or agro processing?. Too many hard constraints and conditions could make matters complicated and eventually hinder the flow of FDI, denying the intended benefits. 30-50% investment in back-end is feasible over the first 5 years of operation. But one should keep in mind that the business model might vary format to format. For example, food retailers might need greater investment in cold chain than electronic or home improvement retailers. Secondly, as experience suggests, it may be difficult to draw the line and objectively distinguish what is front end and what is back end. Thirdly, specialized agencies and service providers (such as 3rd party logistics) will make part of these investments in the back end. The policy therefore

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should incentivize and monitor the total collective backend investments being made, without being overly concerned about who is making those investments individually. 7.3 To develop our rural sector, should conditionalities be put on the FDI funded chains relating to employment? For example, should we stipulate that at least 50% of the jobs in the retail outlets should be reserved for the rural youth? Modern Retail will create new (and better quality) employment not just among rural youth, but for other economically backward sections of the society as well, such as female, semi/unskilled, semi-educated, urban poor etc. 7.4 Similarly, to develop our SME sector through local sourcing, should we stipulate that a minimum percentage of manufactured products be sourced from the SME sector in India? This is certainly viable, as Indias potential as a sourcing hub is under-utilized at present. Global retailers would leverage Indian manufacturing base more, once they are allowed to set up local operations here 7.5 How best can small retailers be integrated into the upgraded value chain? Can they be provided access to the logistics/ supply chain set up by the FDI funded retailers? Should it be stipulated that a minimum percentage of the latters sales should be made to retailers through special wholesale windows? The industry needs several infrastructural and policy level support, which will benefit small and large retailers alike. One of them is Industry Status to Retail and easier financial access. There are several other ways to support the Trade sector in general. As for wholesale channel, modern retail will control inflation through better efficiencies and once there is economic advantage in sourcing from modern wholesale, small retailers (especially those located in rural areas) will switch to those options on their own. So market forces could be a better tool to use, rather than stipulations alone. 7.6 Will any of the conditionalities mentioned above be inconsistent with our commitments under the agreement on TRIM at WTO? If not, to ensure national treatment, can such conditionalities be extended to all retail chains in India above a certain size? Will such extended conditionalities be consistent with Article 301 of the Constitution?

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To accrue the desired benefits to the economy (besides complying with WTO requirements), there should be level playing field between domestic and foreign retailers. In fact many of the new entities will be joint venture companies between the two.

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