Government brings farmers in loop to push FDI in multi-brand retail

 The Economic Times -

NEW DELHI: The government has readied a plan that will make it mandatory for foreign retailers eyeing India's multi-brand retail sector to do bulk of their sourcing from small farmers, its latest attempt to make the long-delayed reform palatable to opponents.

The commerce and industry ministry is ready with a cabinet note that suggests allowing 51% foreign direct investment in multi-brand retail and has provisions that require potential entrants to source at least 60% of farm produce from small farmers having land holdings of less than 10 hectares, officials with knowledge of the note's contents said.

The note also includes another provision that will ential multi-brand retailers sourcing 30% of their supplies from small and medium enterprises anywhere in the world, they added. The cabinet note is ready and is awaiting clearances from the highest level, an industry ministry official said.

Of late, FDI in multi-brand retail has become a test case of the UPA government's commitment to push pending economic reforms and revive flagging sentiment.

Indian rules now allow 51% FDI in single-brand retail and 100% in wholesale cash and carry operations. Multinational retailers have for long been lobbying for entry into India's $400-billion and fast expanding retail market, but foreign investment in multi-brand retail has for years been a political hot potato, with elements within the ruling coalition, the Left parties and the BJP opposed to it because they believe organised retailers will kill small shopkeepers and traders.

Policymakers in the government are keen to allow FDI in multi-brand retail as they believe this is one reform that could bring modern technology in much-needed back-end infrastructure and help farmers get better remuneration for their produce. The idea received strong backing at a recent meeting of key government economists called by Prime Minister Manmohan Singh.

Officials and some ministers also believe that allowing FDI in multi-brand retail is one reform that could be implemented without much difficulty as it does not need parliamentary approval, unlike the proposal to lift the cap on foreign holdings in insurance companies to 49% from 26%, which needs to be cleared by Parliament.