FDI in Retail – to push IT investments

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The government is looking towards allowing 51% FDI in the politically sensitive retail sector with a rider that permission of the states would be a must to open stores in the country.

This development could provide a big push for the global chains like Wal-Mart, Metro and Carrefour which have been waiting since long for India to open foreign direct investment (FDI) in the multi-brand retail.
As a cascading effect this development is also likely to increase the IT spend of the overall retail sector as more and more retail chains would look for opening up new stores into unchartered territories of the country.  

The Department of Industrial Policy and Promotion (DIPP), which is piloting the issue, is happy with the support it received from the Inter-Ministerial Group (IMG) on Inflation.

The group has strongly advocated opening the sector to foreign investment, as it feels the layers between the farm gate and the consumers need to be cut through a strong supply chain and back-end logistics.

DIPP had proposed other riders as well. These included a minimum FDI of $100 million (about Rs 450-460 crore)half of which must be invested in the back-end infrastructure like cold storage, soil testing labs and seed farming.

At the moment, Indian government allows FDI only in single brand retail chains like Nike, Louis Vuitton with a cap of 51%. It also permits 100% overseas investment in wholesale cash-and-carry format.

With Indian economy shining bright, several of the big chains like Wal-Mart and Carrefour have set up their joint ventures in India, waiting in the wings for their full-scale entry into the multi-brand retailing. India's total retail sector is estimated at $590 billion, with unorganised sector accounting for $496 billion, according to an Icrier report.
     
The government's policy on retail investment will help the IT enablement of the retail sector in a better way and also help in boosting the country's FDI, which declined by 25% to $19.42 billion in FY11 from $25.83 billion in the previous fiscal.