The Telegraph
Since 1st March, 1999
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Renewed bid to open retail door

New Delhi, Sept. 18: The Congress-led government is ready to consider a plan to allow the world’s large retail players like Wal-Mart and Tesco limited entry into the country.

The proposal is hugely controversial but the government is hoping it will be able to address Left concerns over job losses that such a policy could precipitate even as it seeks to attract foreign investment in building back-end infrastructure like cold chains.

Top officials said the government has been informally sounding out both Left parties as well as domestic retail players and retail global giants to work out a compromise which allows limited entry for foreign investors into the lucrative Indian retail market.

The aim would be to limit retail format stores supported by global giants to upmarket products and to selected metropolises only, officials said. “This will not impact the mom-and-pop stores,” they said.

Officials refused to spell out whether such a move would also leave the lucrative market in large towns in the hinterland and in the lower price band to domestic retail giants such as Reliance and Big Bazaar.

Top finance ministry officials who support the move feel it could prove to be a “goldmine” in terms of foreign investment.

They say allowing up to 26 per cent in the current phase could meet objections posed against “giving away retail trade control to foreign investors”.

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

Last year, the Left had crossed swords with the Congress government over plans to allow up to 100 per cent FDI in retail. The Left felt that such a move could see millions of jobs being lost in the kirana stores across the country.

Officials say they are hopeful the compromise will work out as Bengal’s capital 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 disagree with a McKinsey report which has projected addition of some 71 lakh jobs in the retail sector between 2000 and 2010 with some 8 lakh of these jobs being added by supermarkets. On the contrary, they feel the opening up will actually lead to job losses.

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

More realistically, average GDP growth during the decade is going to be about 6 per cent, given the 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 would imply greater job losses than envisaged by McKinsey's analysts.

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