The central government has invited suggestions from all concerned on the subject of allowing foreign direct investment (FDI) in the multi-brand retail segment. The discussion paper released by the Department of Industrial Policy and Promotion (DIPP) on Tuesday states that allowing FDI in retail will help fund investments in farms and storage chains and reduce prices. This politically sensitive issue has come up for discussion due to paucity of funds in creating back-end infrastructure.

Those favoring the entry of FDI in retail argue that FDI inflow in front-end retail sector is vital for the growth of the country’s agricultural sector and rural infrastructure. Moreover, the massive employment opportunities provided by the capital inflow is immensely helpful in sustaining the economy of the rural segment.

Improvement in farmer income, reining in consumer prices and thereby inflation and elimination of inefficiency in the supply chain structure are some of the advantages pointed out. Prosperity of rural areas and growth in agriculture being two major criteria for the country’s economic well-being, the idea of FDI in retail is finding many takers.

However, detractors are also not in short supply. Spearheaded by the opposition party, BJP, they argue that FDI in retail would displace small vendors resulting in loss of jobs and livelihood. Small-time farmers need to be organized to have any bargaining power. This needs to be addressed, so do other important issues like electricity and surface water.

Union Commerce and Industry Minister Anand Sharma while disclosing his views on the topic said, “We have not released a policy. It is only a debate and we will study the inputs and comments of the stakeholders and then take a sensitive view of the situation. This sector has a potential for tremendous growth and we need to tap that to give a new and dynamic direction to India’s economic growth.”

The discussion paper has clarified that the views expressed in it are that of the department and not the government’s. Stakeholders can submit their comments before month end.

Triveni in-vehicle retail format, India’s first in- vehicle retailing service company is all set to expand across India. Triveni’s in-vehicle retail format has completed four months of operation through the AC buses of Navi Mumbai Municipal Transport (NMMT) and caters to over 5,000 commuters every day. The service was rolled out on January 26, 2010. According to Triveni Enterprises’ Business Head Sunil Jha says, “We are a start-up and wanted to explore a new channel of servicing. Considering the number of commuters and the products that are meant for on-the-go customers, this is a perfect concept.”

This new concept is yet to catch up in other cities. However, with an overwhelming response from commuters, this concept could soon become a vogue in all cities. NMMT’s General Manager Jitendra Papalkar says, “This is a new initiative by NMMT, which will be replicated by other transport operators soon. We constantly strive to give better and innovative service to our passengers and promote public transport usage. Considering the higher cost of our operation, we are happy to develop this completely new revenue stream for NMMT.”

Triveni Enterprises handles the entire back end logistics operation and has tied up with several major food and beverage companies, including PepsiCo, Parle Agro, Bisleri, Nestle India, etc, to offer a host of snack choices for commuters on NMMT’s buses. Triveni Enterprises contributes to about 6% of sales to NMMT. However, to improve sales, Triveni Enterprises is also planning to introduce other products and services to commuters such as bill payments, internet surfing which will enable them to break even.

Though the concept is new Triveni Enterprises has already received requests from other transport operators like BEST Mumbai, Metro link (Pune) etc and has plans to replicate this model across India by the end of this financial year.

When the government is considering 100 percent foreign equity in multi-brand retail and is expected to come out with discussion paper soon. Industry chamber Assocham today expressed its opposition to permitting 100 percent foreign FDI in the multi-brand retail at a go. Assocham president Swati Piramal, said that consequences of such an action should be considered and the chamber should first consult the domestic industry before finalizing the entry of overseas mega malls in the country. In a statement Swati Piramal said, “100 per cent foreign equity in multi-brand retail should not be offered to multi-national companies in a single stroke and consultation with the domestic players is needed before any policy announcement is made.”

Currently, the government bans FDI in multi-brand retail. Though there is a cap of 51 percent on FDI in single-brand retail, it is 100 percent in cash-and- carry format. The industry body also supported 100 percent FDI in single-brand retail, provided the organized retail industry share increases from its current 12 percent to 50 percent in the retail industry. One of the retail players said that, “In a few years, the share of organized retail will be significantly higher and the country will be far more attractive and ripe for attracting higher levels of FDI.”

India might allow foreign direct investment (FDI) in the multi-brand retail with some stiff conditions. Currently, global retailers are permitted to open wholesale trade and also single-brand, high-end retail. The Department of Industrial Policy and Promotion (DIPP) will soon decide on the policy for allowing FDI in different sectors including multi-brand retail. In India multi-brand retail is dominated by Kirana stores and few organized players like Future Group, Reliance Retail and Spencer’s group. According to the new policy global retailers who are interested in setting up multi-brand stores might have to invest heavily on back-end infrastructure like warehousing and cold storage.

Prime Minister Manmohan Singh had recently suggested changes in the FDI policy while expressing his concern over high food prices. He said, “We need greater competition and therefore need to take a firm view on opening up of the retail trade.” Since FDI is not permitted in multi-brand, WalMart started jont venture with Bharti Group for its cash-n-carry concept of stores. Opening up FDI will allow many global players to enter the retail market and retail will eventually witness a sea of change in terms of product range, customer experience and most importantly pricing.