Assocham for 49pc FDI in domestic retail sector

New Delhi, Oct 9: While the domestic industry is opposed to 100 per cent of foreign equity in the growing retail sector, the majority of the domestic firms are keen on allowing 49 per cent FDI in a caliberated manner, said industry chamber Assocham here today.

The Chamber's proposal comes to provide the domestic players in the organised retailing at least two to three years' time to face the competition from giant foreign players in the retail sector.

In a note submitted to the Commerce and Industry Ministry, Assocham has suggested the government to first consult the domestic industry before finalising and announcing entry of overseas mega malls in the country.

''Consultation with the domestic players is needed before any policy announcement is made,'' the Chamber stated.

In response to the Assocham questionnaire circulated to the domestic players, one of the leading retailing companies which runs value-buying chains throughout the country, wanted a period of two to three years for the domestic industry to consolidate.

Many of the retail firms in the domestic sector favoured export commitments on the FDI investment, by as much as 20 times. They also wanted FDI investment in backend infrastructure like cold storage so that the supply chain becomes smooth.

As against 10, 15 or maybe 20 stores, the foreign players run a huge number of stores worldwide giving them the economies of scale and managing their global supply chain, according to Assocham.

The annual turnover of Wal-Mart of over 250 billion dollars is much higher than the total size of the Indian retail industry (both organised and unorganised). As against 10 or 15 large format stores, Wal-Mart has over 5000 stores world wide.

Besides, the domestic players suffer from the lack of infrastructure, the biggest bottleneck being the prohibitive prices of large retail spaces in the upmarket or central locations in the large Indian cities.

This is primarily because the private holdings are fragmented and the impact of the Urban Land Ceiling Act. The pro-tenancy Rent Control Acts have distorted the property markets in the cities leading to exceptionally high prices.

A plethora of bureaucratic hurdles and high capital cost also place the domestic retailing firms at a disadvantage against the international players who have over the years placed efficient chains in order at a low capital cost. It is estimated that for opening a single store in the country as many as 13 licences are required.

Absence of single window clearance, coupled with other issues like lack of property infrastructure, work as a major impediment to the growth of the retailing, the Chamber said.

Notwithstanding the policy issues, the retailing has a great future in India since its total size of over 200 billion dollars comes close to being one-third of the size of the total economy.

However, the share of the organised sector in the retail trade is only three per cent but it is expected to reach 10 per cent by 2010, throwing big opportunities for the prospective new players.

UNI