Favouring a phased opening of India’s multi-brand retail trade to FDI, the Economic Survey 2011-12 on Thursday said foreign investment could help in curbing food inflation in a significant way.
“Allowing FDI in multi-brand retail is one of the major issues in this sector. This could begin in a phased manner in the metros, with the cap at a lower level coupled with incentivising the existing ‘mom and pop’ stores (kirana shops) to modernise and compete effectively with the retail shops, foreign or domestic,” the survey said.
The survey said that the Inter-Ministerial Group (IMG) on inflation has recommended leveraging FDI in multi-brand retail as one of the means for addressing issues relating to high rates of food inflation and low prices realised by Indian farmers.
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While agricultural marketing could improve immensely with the growth of modern retail trade, revenue to the government could also increase, as at present the retail sector is largely unorganised and has low tax compliance, it added.
As per IMG on inflation, FDI in multi-brand retail would help in developing a ‘farm-to-fork’ retail supply system, and addressing the investment gaps in post harvest infrastructure for agricultural produce, it said.
Since 2006, India has been allowing FDI in single brand retail to the extent of 51 per cent. In January 2012, the government removed restrictions on FDI in the single brand retail sector, allowing 100 per cent FDI.
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The government has, however, put a condition in respect of proposals involving FDI beyond 51 per cent, making mandatory sourcing of at least 30 per cent of the value of products sold from Indian ‘small industries/ village and cottage industries, artisans and craftsmen’
The value of trade (inclusive of wholesale and retail in the organised and unorganised sectors) in India’s GDP at constant prices has grown from Rs 433,967 crore in 2004-05 to Rs 7,42,621 crore in 2010-11, at a CAGR of 9.4 per cent.
“With a high GDP growth in the last five years, and high growth in consuming population, the retail business is of late being hailed as one of the sunrise sectors in the economy,” the survey said.
A T Kearney, an international management consultancy firm, has identified India as one of the topmost retail destinations, it added.
Providing a sectoral analysis, the survey said retail trading companies have witnessed a decline in sales growth in 2010-11 by 12 per cent and so far in 2011-12 by 9.4 per cent.
“A sharp rise in prices of branded apparels, due to the imposition of 10.3 per cent excise duty as well as a rise in prices of yarn and fabrics, led to lower consumer spending and this has hit the sales volumes of garment retailing companies,” it said.
However, during 2012-13 sales are expected to grow by 15.7 per cent. PAT during 2011-12 is expected to show an impressive growth of 53.1 per cent and during 2012-13 is expected to grow by 34.4 per cent, it added.