Hello Walmart! Cabinet Approves 51% FDI in Indian Retail

In a big-ticket policy decision, the cabinet on Thursday opened the high-growth retail sector to foreign chains. That means people can soon shop at international department stores such as Walmart, Carrefour, and Tesco in India.

The politically sensitive decision to allow up to 51 percent FDI in multi-brand and 100 percent in single-brand retail came a few months ahead of Assembly elections in five states, including Uttar Pradesh. A stormy cabinet meeting, amid protests from UPA allies, cleared the proposal along with a set of stringent riders, which may pose a hurdle to many foreign players. This is the first time since retail FDI was mooted some seven years ago that the proposal reached the cabinet.

Almost five years ago, to get a feel of things, the government had commissioned economic think tank ICRIER to assess the impact of organised retail on neighbourhood mom-and-pop or kirana stores. Even as the report had concluded in May 2008 that the impact of modern retail on the profitability of small stores would wear off with time, the government could not muster the courage to allow FDI in multi-brand retail for fear of hurting small traders, an important vote bank.

THE STORY SO FAR

January 1997: The government allows 100 percent FDI in wholesale cash-and-carry trading — the route through which Walmart, Tesco, and Carrefour eventually enter India, restricted to selling to businesses, not consumers.

2006: The government permits 51 percent FDI in single-brand retail, opening the door to brands like Nike and Apple operating their own stores.

2010: The Department of Industrial Policy and Promotion releases a discussion paper on opening multi-brand retail to foreign investment, seeking public comment.

November 24, 2011: The cabinet approves 51 percent FDI in multi-brand retail and raises single-brand to 100 percent, with riders: a minimum investment of $100 million, at least half of it in back-end infrastructure, 30 percent sourcing from small industries, and stores permitted only in cities with populations over one million (53 cities), with states getting a say.

December 7, 2011: Under fierce opposition from allies — notably the Trinamool Congress — and small-trader protests, the government suspends the decision, promising to build consensus first. The policy would be revived in September 2012.

Editor's note: this article was written on the day of the cabinet decision. Within two weeks, the decision was put on hold — a reminder that in Indian retail reform, the announcement and the implementation are two very different things.