The Hindu : Business : Study suggests 49 p.c. FDI in retail trading

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Friday, Jul 15, 2005

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Study suggests 49 p.c. FDI in retail trading

Special Correspondent

Phased opening up, repeal of ECA favoured

NEW DELHI: A leading think-tank has urged allowing up to 49 per cent foreign direct investment in the retail sector along with reforms like repeal of the Essential Commodities Act. It has also suggested that the opening up of the FDI regime should be gradual — over a three to five year timeframe — to give the domestic industry enough time to adjust to the changes.

Releasing a report on this issue here on Thursday, representatives of the Indian Council for Research on International Economic Relations (ICRIER) said an FDI cap of below 49 per cent would not bring in the desired foreign investment collaboration.

The report prepared jointly with the Department of Consumer Affairs is stated to be the first academic research in the area, taking views of stakeholders into account and evaluating its likely impact on them.

Quality standards

The study points out that since foreign retailers are allowed to enter the market through other routes, the existing ban on FDI has not acted as an entry restriction.

On the contrary, it says, the country is losing foreign investment while the entry process has become non-transparent and complicated. "India is the only major country which has still not allowed FDI in retailing.

Experiences of countries such as China, Brazil and Thailand show that the impact of FDI has been largely positive," the report says.

It suggests, however, that the strategy of opening up should be backed by appropriate reform measures like repealing the Essential Commodities Act. It also seeks enforcement of quality standards for local production and imports.

It notes that the Indian retail sector is highly fragmented and in consolidation mode and therefore the opening up of the FDI regime should be gradual.

The study feels that the Government can impose certain zoning regulations but should not discriminate between local and foreign players.

It says multinational retailers will continue to source products from this country in view of its competitive advantage in products like garments, leather footwear and jewellery.

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