Buying Binge

New Delhi, May 2: The Congress-led government is once again drawing up a plan to open up the retail sector in a limited manner.

Officials said the government was considering a retail trade package to address Left concerns over job loss while bringing in foreign investment for back-end infrastructure like cold chains.

The US and EU have started lobbying in favour of opening up the sector as the Assembly elections will soon be over. Franklin L. Lavin, US under secretary for commerce, who is on a trip to India, is believed to have raised the issue.

The Centre had put the issue on the backburner to avoid a confrontation with its Left allies during the Assembly elections. But officials said the process is likely to be kickstarted now.

Finance ministry officials, who support the move, feel it could prove to be a 'goldmine' in terms of foreign investment. According to them, allowing up to 26 per cent in the current phase could pacify those who raised objections against 'giving away retail trade control to foreign investors'.

Retail trade in India currently accounts for around 11 per cent of GDP and employs over 25 million people or 8 per cent of the total workforce. Analysts said this figure could change dramatically if transnationals came in and increased efficiency in this sector.

Last year, the Left crossed swords with the Congress government over plans to allow up to 100 per cent FDI in retail. The Left felt such a move could result in millions of job losses in pop and mom stores across the country.

But sources said a compromise formula is likely to be drawn which will see a limited opening up of the sector. Officials say an alternative being toyed with is opening up food retailing in a limited way, another is to allow foreign investors into a limited number of cities for high-end stores.

Officials expect the compromise to work out as Calcutta, where some 7 per cent of the country's buying power is concentrated, itself has emerged as a major retail hub, attracting the second highest investment in malls, after Mumbai.

However, sections within the Left are still unhappy with the concept. They feel a McKinsey report, which had projected addition of some 71 lakh jobs in the retail sector between 2000 and 2010 with some 8 lakh of these being added by supermarkets, is overrated and the opening up will actually lead to job losses.

A note, prepared by the Left earlier, had said the report is based on an incorrect assumption of 10 per cent GDP growth, coupled with a mere 20 per cent of the share of retailing coming from labour displacing modern format retailers.

According to the note, Average growth during the decade is going to be about 6 per cent, given poor Monsoon years. Besides, if FDI is opened up even marginally, it would catalyse large format retailing to such an extent that its share of the market would be far greater than 20 per cent. This implies greater job losses than envisaged by McKinsey's analysts.

The note argues an average Wal-Mart employee could displace up to 95 traditional retail workers.