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Some states may block retail FDI

Last updated on: July 11, 2011 13:45 IST

Some states may block retail FDI

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Gyan Verma in New Delhi/Kolkata

The move to open multi-brand retail to foreign direct investment may run into rough weather, with key Bharatiya Janata Party-ruled states, as well as some constituent parties of the ruling United Progressive Alliance, rejecting or being ambivalent towards the proposed policy.

That is because the proposed policy, while providing for up to 51 per cent FDI in multi-brand retail, puts the onus of giving permission for setting up such stores on states that accept the rules.

Also, the state governments will be asked to put in place a framework to monitor compliance with the conditions.

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These parties and states have taken this stand close on the heels of the Cabinet Secretariat asking that the opinion of the states should be taken before finalising the policy.

Also, the commerce ministry, while accepting the policy, has added a rider -- that the states cannot add any new condition and have to accept the policy in toto.

"It is assumed that the states, in order the take advantage of the investment in multi-brand retailing, should initiate reforms which are required," it says.

It adds that 'the policy will be implemented only in states which agree to come on board without their own conditions'.

The Bharatiya Janata Party-led Karnataka government said it feared for small retailers. "We need to be cautious as in the name of retail business, foreign companies will build chains that will wipe out small retailers.

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"These retailers have neither money nor expertise to compete with foreign companies. Companies such as Reliance and Tata are already in this business," said a cabinet minister of Karnataka.

The state government said the foreign companies would work as cartels and control prices after small retailers shut shop.

The state government is expected to discuss the response it will give to the Centre by early next week.

The BJP-led Himachal Pradesh government agrees. "We are opposed to FDI in the retail sector.

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"This is the response we will give to the Centre. We haven't received the letter yet. The Union government is trying to give everything to foreign companies and we cannot allow our small retailers to perish," said Chief Minister P K Dhumal.

However, some states, such as Gujarat, are still undecided. Gujarat Finance Minister Saurabh Patel said: "We have not received any letter yet. It is difficult to take a decision without being asked. We will have to first discuss among ourselves." Madhya Pradesh gave a similar view.

The ruling Trinamool Congress, a Congress ally which rules West Bengal, has also put its foot down.

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"We have so far opposed the entry of multinational companies in the retail sector to protect small traders and farmers. We have expressed this opposition on the floor of the Assembly as well. We will continue with this opposition," said state Commerce and Industry Minister Partha Chatterjee.

"We are against the entry of big companies in retail because we think we should protect the interests of small and medium traders," he said.

The proposed policy stipulates that foreign retailers can open stores only in cities with a population of more than 1 million based on the 2011 census.

There are 35 such cities in the country.

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There is a move in the top echelons of the government to start with top six cities of the country.

Assuming that all five BJP-run states (without allies) and West Bengal oppose the move, about 10 of the 35 cities will not get foreign retail stores.

If six cities are considered, then two -- Bengaluru and Kolkata -- will not have foreign retail chains.

The Congress-led states (11 of them), with or without allies, control over nine of the 35 cities.

If just six cities are considered, the party rules Delhi, Mumbai and Hyderabad.

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A Department of Industrial Policy and Promotion committee with members from various departments analysed the response of over 175 entities.

It found that 73 out of the 109 respondents who opposed the move were local trader and retailer associations who were geographically concentrated in a few states.

Other opponents included local manufacturers and non-government organisations.

However, the supporters were more evenly spread out, according to the committee.

National industry trade associations such as Federation of Indian Chambers of Commerce and Industry, Confederation of Indian Industry and the Retailer Association of India, organised retailers, lawyers, prospective investors and think-tanks have supported the proposal.

With contributions from Surajeet Das Gupta & Swati Garg


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