The Centre on Friday said that its decision to further liberalise retail trade will in turn help in generating around 10 million jobs in the next three years. The move will also help attract several big-ticket investments worth “billions of dollars”, it said.
The Union Cabinet had on Thursday permitted 51 per cent foreign direct investment (FDI) in multi-brand retail trade with Government approval and 100 per cent FDI in single brand retail. The existing policy had prohibited FDI in multi-brand retail and allowed only 51 per cent FDI in single brand retail.
The Centre will issue a Press Note next week to lay down the guidelines of the policy on FDI in single-brand and multi-brand retail.
It expects fresh investment proposals in the retail trade soon after that and these proposals will then be considered by the Foreign Investment Promotion Board. After that, the companies will have to approach the States for the requisite licences to begin operations.
“In the next three years, over 4 million jobs will be created in the front-end, while the logistics side of the retail trade will generate around 5-6 million jobs,” the Commerce, Industry and Textiles Minister, Mr Anand Sharma, told reporters. The jobs will be created in the agro and food processing industries, packaging, bottling, canning, containerising, as well as transport sectors.
On the reason for liberalising the FDI policy on retail trade, Mr Sharma said, “Unless and until this is done (liberalise retail trade), we will have a situation where the farmer bleeds and the consumer is fleeced.” The new policy will result in better returns for farmers, cheaper options for consumers as well as help attract the latest technology in retail infrastructure, in cold chain and in value-addition, he said.
‘PREDATORY PRICING’
Mr Sharma also denied that allowing more FDI in the retail trade would result in big players resorting to predatory pricing to push out small stores. In this regard, he said the country has a strong Competition Commission of India (CCI), adding that discussions are on “at the highest level” to further strengthen CCI.
‘ONLINE RETAIL TRADE’
Asked how the condition of allowing retail sales locations to be set up only in cities with a population of over 10 lakh as per 2011 Census will be applicable at a time when more people are buying and selling using internet, Mr Sharma said the Industry Ministry will look into that aspect. However, the Minister admitted that the issue of online retail trade has not been adequately addressed by the policy.
Meanwhile, an official statement said only 53 cities qualify for FDI in multi-brand retail out of nearly 8,000 towns. “The FDI in multi-brand retail is being opened in 53 cities only with population of 1 million and for the rest of the country, current policy regime will apply,” it said, adding that cities may cover an area of 10 km around the municipal/urban agglomeration limits of such cities.
JOB CREATION
The official statement said: “Industry estimates suggest employment of one person per 350-400 sq.ft of retail space, about 1.5 million jobs will be created in the front-end alone in the next 5 years.
“Assuming that 10 per cent more people are required for the back-end, the direct employment generated by the organised retail sector in India over the coming 5 years will be close to 1.7 million jobs. Indirect employment generated on the supply chain to feed this retail business will add millions of jobs,” it added.
MINIMUM INVESTMENT
Mr Sharma said minimum amount to be brought in as FDI by the foreign investor would be $100 million. The Minister added that at least 50 per cent of total FDI brought in shall be invested in 'backend infrastructure'.
‘Back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units, the statement said. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse and agriculture market produce infrastructure. Significantly, expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure, it added.
SOURCING FROM SMALL INDUSTRY
The policy also mandates that at least 30 per cent of the procurement of manufactured/ processed products shall be sourced from 'micro and small industries’ which have a total investment in plant and machinery not exceeding $1 million. Mr Sharma said the new policy will also result in increased sourcing of products from India.
According to the policy, 30 per cent sourcing is to be done from micro and small enterprises which can be done from anywhere in the world and is not India specific. This is to make it compliant with the World Trade Organisation norms.
This condition is to ensure that India’s SME sector, including artisans, craftsman, handicraft and cottage industry benefits, especially in sectors like textiles, gems and jewellery, leather and jute, the statement said. “This condition is applicable for multi-brand retail in all cases and for single brand retail in cases where foreign equity exceeds 51 per cent,” it added.
ENHANCING FDI CAP IN SINGLE BRAND
On the rationale for enhancing FDI ceiling to 100 per cent in single brand retail trading, the statement said, "In the last 5 years, under the current regime of 51 per cent FDI in single brand retail, FDI of only $44.45 million have been received, constituting barely 0.03 per cent of total FDI inflows."
"Globally, single brand retail follow a business model of 100 per cent ownership and global majors have been reluctant to establish their presence in a restrictive policy environment. The current cap of 51 per cent confers a right to pass all ordinary resolutions, while enhancing cap to 100 per cent will confer full ownership and control," it said.
Mr Sharma also referred to the retail policy in countries such as China, Thailand, Russia, Indonesia, Brazil, Argentina, Singapore and Chile where 100 per cent FDI is permitted in the sector and added that the retail and wholesale trade as well as agro-processing sector have posted impressive growth in those countries. He said, therefore, the new policy would not adversely impact small retailers in India.