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Retreat on retail

By C.P. Chandrasekhar

, by Frontline

Resistance by a combined opposition thwarts the Union Cabinet’s move to allow foreign investors 51 per cent equity in multi-brand retail.

IT was an avoidable diversion. While Parliament was in session, the Union Cabinet met to approve hitherto prohibited foreign direct investment (FDI) in multi-brand retail, with a cap of 51 per cent on foreign equity that ensures majority ownership. Simultaneously, the cap on foreign equity investment in single-brand retail was enhanced to 100 per cent, offering sole ownership rights to foreign investors. Opposition to the move resulted in the virtual suspension of an already stalled Parliament. Finally, the audacious attempt of the United Progressive Alliance (UPA) government to push through the controversial proposals had to be revoked until a “consensus” was found. Since a proposal that did not even enjoy a parliamentary majority is unlikely to be accepted by consensus, this is nothing but a rollback.

[...] Consider the arguments. They begin with the view that once the doors to foreign investment in the retail sector are opened, giant international retailers such as Walmart, Carrefour and Metro will use the opportunity to get a share of the large Indian market. This is based on evidence on the pace of penetration of organised retail (led by transnational firms) into developing countries, including those in Asia. An analysis by researchers from Michigan State University and the International Food Policy Research Institute on developments in Asia from 2001 to 2009 found that while domestic conglomerates had played a role in the rapid growth of organised retail in China, Indonesia, Malaysia and Thailand, the presence of foreign firms had grown substantially. Moreover, evidence from developed countries shows that such growth is followed by a process of consolidation in which a few global retail chains tend to be the winners.

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