FDI in multi-brand retail can strenthen supply

chain

BUSINESS LINE19 NOV 2012

The Union Cabinet on 14 September 2012 cleared the proposal of foreign direct investment (FDI) for 51 percent in the multi-

brand retail chains and 49 percent in Aviation power exchanges industry.

Passing of the proposal have cleared the floor for welcoming the multi-brand retail chains like Wall mart and Tesco and

Carrefour in the country for setting up of their shops and retail outlets. Similarly, the 49 percent of FDI allowed in aviation and Power exchanges will bring in funds for the domestic carriers on a verge of death and will help in enhancement of power

availability and distribution management, respectively.

INFRASTRUCTURE DEVELOPMENT

1. To allow 51% FDI in multi-brands retail a minimum investment of $100 million and a mandatory 50% capital reinvestment in back-end operations have been proposed.

2. It will result in better infrastructure, which could translate into better prices for farmers

3. Direct procurement by retailers in the new format is seen to deliver better deals both for the farmers and producers, especially due to improvement in supply chain operations.

4. It will increase the farmers net income by eight % ,while consumer will pay six % less.

WAREHOUSING ISSUE

• Inadequate warehousing is the biggestbottlenecks in the entire supply chain structure.

• FDI will solve this problem.

CONDITIONS PUT FORWARD FOR INVESTORS IN THE PROPOSAL FOR THE MULTI-BRAND RETAILS

1. The proposal makes a clear stand that investors looking ahead for investments will have to take the permission in form of approvals from the Foreign Investment Promotion Board

2. Investment of minimum $100 million is a must for any foreign investor planning to invest in India, out of which 50% of the investment should be made in creation of back-end infrastructure. Back-end investment means investments that is made in quality control, warehouse creation, cold storage, design improvement, manufacturing, processing and packaging

3. The investors will have to get 30% of the production of their total products by the small-scale industries.

4. The proposal also clears that the agricultural produce like pulses, flowers, fruits, vegetables, poultry item, fishery, meat and others can be unbranded.

5. Investors can invest in the 51 cities with a minimum population of 10 lakh people as per the census presented in the year 2011

WHAT DOES IT MEAN FOR DIFFERENT ECONOMIC SECTIONS OF INDIA

1

•Economy: Help in reversal of the economic slowdown, attract the investment of billions of dollars from foreign market and spin jobs to a greater extent

2

•Kirana Stores: Will lower down the selling price, because they will purchase the supplies from deep down retailers

3

•Retailers: Can sell their equity up to 51% to the global leaders

4

•Farmers: They can sell their produce directly at higher prices and the presence of middle man will end

5

•States: Decision to allow the retail giants or prohibit lies in the hands of states.

6

•Common Man:  A chance to gain big discount with many options to shop.