FDI in multi-brand retail won't take away right of States: Centre

A vegetables corner in the Best Price, a wholesale cash and carry store of Bharti Walmart Pvt Ltd. at Nidamanuru near Vijayawada . Photo: Ch.Vijaya Bhaskar.

The Central Government, on Tuesday, strongly rejected the opposition BJP claim that international investment protection treaties and undertakings under WTO would override the right of the State government to reject entry of multi-national food chains under the newly-approved 51 per cent foreign direct investment (FDI) in multi-brand retail policy. An official spokesman of the Commerce and Industry Ministry said here that it would be the prerogative of the States to allow a multi-brand store.

The policy itself was a national policy, and could potentially be applicable to all the States that were desirous of implementing it. The local and State-level regulations which governed shops and establishments were the prerogative of the respective State governments, the spokesperson added. “The policy explicitly acknowledges this position. The opening up of FDI in multi-brand retail trading is a liberalisation measure and remains so with all the conditionalities, given the fact that at present FDI in multi-brand retail trading is not allowed in India. The decision does not violate any commitments/obligations arising out of India’s international agreements,” the spokesperson said.

Market access

Giving further details, the spokesperson said market access, in the context of FDI policy, implied the ability of a foreign investor to enter the investment space in India and the limitations thereon. A foreign multi-brand retail investor could invest in India only after the government decision was notified. An official release said that the Bilateral Investment Promotion & Protection Agreement (BIPA) was a post-establishment investment agreement. This implied that once an investor entered the country, that investor must be treated the same as a domestic investor unless the limitations to national treatment were clearly spelt out at the pre-establishment stage. The FDI policy was a pre-establishment instrument and, therefore, not covered by BIPA, it added.

Pre and post

Similarly, for the Comprehensive Economic Partnership Agreement (CEPA), it said under these agreements, India had taken both pre and post establishment commitments. In the pre-establishment commitments, the FDI policy has been bound, which means that any rollback would require consultations with the partner country and could entail quid pro quo in terms of concessions in other areas. Within the FDI policy, commitments may be taken only in some specified sectors (positive listing). Since FDI in multi-brand retail trading was not allowed when these agreements were negotiated, none of these agreements is affected by the recently approved policy. Moreover, state and local regulations are not a part of such commitments.

The spokesperson said India has not undertaken any commitments in this area under the General Agreement on Trade in Services (GATS). As such, there is no impact of the policy on our commitments under the WTO. Investment is not a part of WTO disciplines except through Mode 3 under GATS.