India: House panel opposes foreign investment in retail

Original Publication Date: 
8 June, 2009

New Delhi: A Parliamentary Standing Committee has recommended a blanket ban on foreign investment in retail and has opposed even big domestic corporate entering the sector saying that it will lead to unemployment.

"The committee ... recommend that a blanket ban should be imposed on domestic corporate heavy weights and foreign retailers from entering into retail trade in grocery, fruits and vegetables," it said, adding that restrictions should be put for opening large malls by them for selling other consumer products.

The committee, headed by Murli Manohar Joshi, feels that "opening of foreign direct investment (FDI) in retail trade by allowing single brand foreign firms in India will result in unemployment due to slide-down of indigenous retail traders".
The 42-member panel in its report on `Foreign and Domestic Investment in Retail Sector´ further said that the government should stop issuing "further licences for "cash and carry either to the transnational retailers or to a combination of transnational retailers and the Indian partner, as it is "mere a camouflage for doing retail trade through back door".

The government may consider setting up a national commission to study the problems in the retail sector and to evolve policies that would enable it to cope with FDI, the Parliamentary panel said.

According to existing guidelines, FDI is prohibited in retail trading except for single brand retail in which 51% FDI is permitted.

Whereas 100% FDI is permitted under the automatic route in wholesale cash and carry trading.

The committee said allowing cash and carry wholesale in India is nothing but allowing back-door entry of foreign firms into retailing.

"Consumers' welfare would be sidelined, as the big retail giants by adopting a predatory pricing policy would fix lower price initially, tempting the consumers," it said adding that after wiping the competition from local retailers, they would be in a monopolistic position and would be able to diktat the retail prices.

It said procurement centres constituted by big corporates for making direct bulk purchases would initially pay attractive prices to farmers and cause gradual extinction of mandis and regulated market yards.

Unorganized retail employs over 40 million people, which accounts for 8% of the total employment.

"...the government should ensure that some in-built policy must be established to relocate or re-employ the people who are dislocated due to opening of big malls in the vicinity of their shops," the Committee said.

"...there is a need for setting up of a retail regulatory authority to look into the problems and act as a whistle blower in case of anti competitive behaviour and abuse of dominance," it added.

On the use of agricultural land for shopping malls, the Committee feels that diverting the land may not merely lead to reduction in production or income to farmers, it may affect the social and cultural life of farmers.

"The government should come out with adequate safeguards to prevent diversion of agricultural land for setting up of malls," it said.