background on FDI retail

source:pib.nic.in

EXISTING POLICY

Ø  FDI in Multi Brand Retail Trading (MBRT) is prohibited.

Ø  Foreign direct investment (FDI),  up to 51%, in the Single Brand Retail Trading (SBRT) sector, is permitted, under the Government/FIPB route, subject to the following conditions:

(a)    Products to be sold should be of a ‘Single Brand’ only.

(b)    Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

(c)    Single Brand’ product-retailing would cover only products which are branded during manufacturing.

(d)    The foreign investor should be the owner of the brand

FDI in SBRT was first permitted vide Press Note 3 (2006), dated 10.2.2006.

RATIONALE FOR LIBERALIZATION

Leveraging foreign investment in supply chain infrastructure

Ø  Lack of investment in the logistics of retail chain creating inefficiencies in the food supply chain.

Ø  Though India is the second largest producer of fruits and vegetables (about 200 million MT), it has a very limited integrated cold-chain infrastructure, with only 5386 stand-alone cold storages, having a total capacity of 23.6 million MT, 80% of this  is used only for potatoes.

Ø  Lack of adequate storage facilities cause heavy losses to farmers in terms of wastage in quality and quantity of produce in general, and of fruits and vegetables in particular.  Post-harvest losses of farm produce, especially of fruits, vegetables and other perishables, have been estimated to be over Rs. 1 trillion per annum, 57 per cent of which is due to avoidable wastage and the rest due to avoidable costs of storage and commissions.

Ø  As per some industry estimates, 35-40% of fruits and vegetables and nearly 10% of food grains in India are wasted. Though FDI is permitted in cold-chain to the extent of 100%, through the automatic route.  In the absence of FDI in front-end retail, investment flows into this sector have been insignificant.

Ø  The consequences of inadequate infrastructure are:

• Indian farmer realizes only 1/3^rd of the total price paid by the final consumer as against 2/3^rd with higher degree of retail.  A World Bank Study of 2007 demonstrates that the average price a farmer receives for horticulture produce is barely 12 to 15% of what is paid at the retail outlet.
• An 11th Plan working group has estimated a total investment of Rs. 64,312 crores in agricultural infrastructure.  A storage capacity gap of 35 million tonnes has been assessed, requiring an estimated investment of Rs. 7,687 crores during the 11th Plan.

Bringing supply chain efficiencies

Ø  Foreign retail majors have gained decades of experience, technologies and management practices which will ensure supply chain efficiencies.

Medium-term impact on regulating food inflation

Ø  The opening up of Multi Brand Retail will also have a salutary impact on food inflation as it would contribute to savings to the food which perishes on account of inadequate infrastructure.

Securing remunerative prices for the farmers

Ø  In the present dispensation, there is a complex chain of procurement involving several middlemen.  FDI in retail will create the enabling environment and it is expected that progressive States will undertake gradual reform of APMC Act which will ensure direct procurement, at least of horticultural produce from farmers to enable them secure remunerative price.   

Employment opportunities

Ø  Huge investments in the retail sector will see gainful employment opportunities in agro-processing, sorting, marketing, logistic management and the front-end retail business.

Ø  Industry estimates suggest employment of one person per 350-400 sq.ft of retail space, about 1.5 million jobs will be created in the front-end alone in the next 5 years.  Assuming that 10% extra people are required for the back-end, the direct employment generated by the organized retail sector in India over the coming 5 years will be close to 1.7 million jobs.  Indirect employment generated on the supply chain to feed this retail business will add millions of jobs.       

MULTI-BRAND RETAIL FDI POLICY IN OTHER COUNTRIES

S.No.	Country	FDI Limits	Benefits	Remarks
1.	China	100%	·   First permitted in 1992 with foreign ownership restricted to 49%, progressively lifted and now no restrictions. ·   Over 600 hypermarkets opened between 1996 and 2001 ·   The number of small outlets (equivalent to ‘kiranas’) increased from 1.9 million to over 2.5 million ·   Employment in the retail and wholesale sectors increased from 28 million people to 54 million people from 1992 to 2001.	Impressive growth in retail and wholesale trade.
2.	Thailand	100%	·   Referred to a country where FDI had an adverse effect on the local retailers. ·   Has a limited capital requirement for retail and wholesale outlets.	Growth in agro processing industry.
3.	Russia	100%	·   Supermarket revolution took place in 2000s. ·   Heavy growth registered.
4.	Indonesia	100	·   Modern retail took off in 1990s. ·   No limit on number of outlets ·   Matahari is leading chain.
5.	Brazil, Argentina, Singapore & Chile allow 100% FDI in retail sector while Malaysia permits FDI to a certain limit.

Cabinet decision

To permit FDI in MBRT in all products, in a calibrated manner, subject to the following conditions:

ü  FDI in Multi Brand Retail Trade (MBRT) may be permitted up to 51%, with Government approval;

ü  Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. 

ü  Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.

ü  At least 50% of total FDI brought in shall be invested in `backend infrastructure`, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc.  Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.

ü  At least 30% of the procurement of manufactured/ processed products shall be sourced from `small industries` which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a `small industry` for this purpose.

ü  Self-certification by the company, to ensure compliance of the condition as above, which could be cross-checked as and when required. Accordingly, the investors to maintain accounts, duly certified by statutory auditors.

ü  Retail sales locations may be set up only in cities with a population of more than 10 lakh as per 2011 Census only 53 cities qualify for FDI in multi-brand retail out of nearly 8000 towns and cities and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

ü  The FDI in multi-brand retail is being opened in 53 cities only with population of 1 million and for the rest of the country, current policy regime will apply.  In the current regime, 100% FDI is allowed upto wholesale cash and carry point from which franchise/small retailers are able to source quality products for sale to the public at large.

ü  Government will have the first right to procurement of agricultural products;

To permit 100% FDI in single brand retail trading, subject to the following conditions:

ü  FDI in single brand retail trading may be permitted up to 100% with Government approval;

ü  Products to be sold should be of a ‘Single Brand’ only.

ü  Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.

ü  ‘Single Brand’ product-retailing would cover only products which are branded during manufacturing.

ü  The foreign investor should be the owner of the brand.

ü  In respect of proposals involving FDI beyond 51%, 30% sourcing would mandatorily have to be done from SMEs/ village and cottage industries artisans and craftsmen. `Small industries` would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a `small industry` for this purpose. The compliance of this condition will be ensured through self-certification by the company, which could be subsequently checked, by statutory auditors, from the duly certified accounts, which the investors will be required to maintain.

Condition of 30% sourcing from small scale sector

ü  30% sourcing is to be done from micro and small enterprises which can be done from anywhere in the world and is not India specific. However, in this case, it has been stipulated that 30% sourcing will be done from micro and small enterprises having plant and capital machinery worth US 1 million.

ü  This condition will ensure that our SME sector, including artisans, craftsman, handicraft and cottage industry benefits, especially in sectors like textiles, gems and jewellery, leather and jute.

This condition is applicable both for Multi-brand retail in all cases and for single brand retail in cases where foreign equity exceeds 51%.

apprehensions

Rationale for enhancing FDI ceiling to 100% in single brand retail trading.

In the last 5 years, under the current regime of 51% FDI in single brand retail, foreign direct investment of only US$ 44.45 million have been received, constituting barely 0.03% of total FDI inflows.  Globally, single brand retail follow a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment.  The current cap of 51% confers a right to pass all ordinary resolutions, while enhancing cap to 100% will confer full ownership and control. 

Public administration thinkers compilation

Thinkers Sysnopsis

SHOULD INDIA GO NUCLEAR IN A BIG WAY?

Please find below an essay i wrote for CSR essay contest. managed to bag a consolation prize.

India has made phenomenal economic progress in last 2 decades. The economic reforms in 1991 unleashed the entrepenuerial spirits which lead to upliftment of millions out of povery. Today we stand amidst the fastest growing nations in world. Despite our phenomenal growth we still havent been able to address the problems of infrastructure.

                Power generation has failed to keep pace with rapid economic growth.This has widened the energy deficit. Over 50% of india’s households lack electric supply. Current power generation is 1.7 lakh MW of which 70% is generated using fossil fuels. By 2020 consumption demand is expected to be double the current demand. There is an urgent need to ramp up electricity generation.

                India’s economic growth has been fuelled by high growth in service sector.Now service sector growth has saturated and government is focusing on bringing about growth in manufacture sector. Growth in manufacture sector will lead to greater demand on power supply. Power sector needs to grow at a rate which leads to narrowing the deficit and support a double digit growth of economy. To achieve this, new sources of power generation from renewable and non conventional sources of energy needs to be explored. 

Currently over 70% of India’s crude oil is imported from middle east and west asia. This dependence on outside world threatens India’s energy security. The coal reserves India are of low quality and can’t be put to efficient use in thermal power generation.Apart from that most of our natural resources lie under dense forests. Environmental concerns have led to a slow down in mineral explorations and it is unlikely that India will be able to rapidly increase its fossil fuel productions.

Another option that has been explored is hydel power. Jawaharlal Nehru hailed dams as temples of  modern India. Hydel power generation requires damming rivers . Most of rivers in India are inter state rivers and multi purpose river projects have lead to numerous river water disputes. Dams have also lead to displacement to the tribals and poor with no significant relief and rehabilitation measures. In this scenario , solar and nuclear seem to be the only feasible options to power indias growth.

Government has launched the jawaharlal nehru solar mission with a target of producing 20 GW of solar power by 2022. India being a tropical country has enormous potential for solar energy. However solar technology is still in primitive stage and is costly for a poor country like India. It lacks the ability to bridge the widening energy deficit  in India. India needs an energy source that can generate electricity at a rate that it exceeds the growth in demand and provide a surplus which could be shared with its energy starved negihbours.

                India has 25% of World Thorium which is capable of producing three lakh Mega Watts for three hundred years. Hence nuclear power is one source that has the potential to meet the challenges thrown up by India. Nuclear power is a compact source of energy requiring lower quantites of fuel in comparison to coal based thermal power station. It is environmentally benign and its green house gas emissions are comparable to that of wind power. India’s nuclear power programme was charted out by visionary scientists Dr Homi bhabha keeping in view the limited urnaium and abundant thorium resources that India possessed. India’s first nuclear power plant came into operation in 1969. However the nuclear apartheid imposed by world on India lead to a slow progress on its peaceful civil nuclear programme. 

In 2008, India managed to came out nuclear apartheid following multiple rounds of negotiation with US on a civil nuclear deal. This has opened up an opportunity to make up for the lost time and make progress on its nuclear programme. However keeping in view the mammoth challenge lying ahead, it was unwise to wait for indegenous nuclear technology to mature and meet the demands. Hence India is now pursuing a approach comprising of two dimensions

a)      Encourage foreign reactor technology use

b)      Support India’s indegenous 3 stage programme

In this context, Indian government has negotiated deals with several countries on nuclear cooperation. India now aims to increase its nuclear power production from 4500 MW to 64000 MW by 2032. Today the world is vying for space in India’s vast nuclear market. Rapid economic growth in last 2 decades has provided it with enough finances to invest in capital intensive sectors like nuclear power. Despite being capital intensive, in long run its cost works out to be comparable to that of coal.

                Nuclear power however is an issue that needs to be dealt with cautiously . It is a double edged sword, especially in a densely populated country like India. The recent incidents of nuclear meltdowns in japan has created a fear among the people. Lack of effort on part of government to educate and enlighten the masses about nuclear power has further comlpicated the issue. The civil society has come out openly opposing nuclear power. They fear the repercussions of a possible radiation leak. However indian nuclear scientists have succesfully managed to run nuclear plants for over 4 decades without any major accidents.  Every technology has its own pros and cons. Even the electricity which can lighten up our lives has the potential to end our life. So there is a need to weigh the pros and cons rather than look at it as an issue of black and white.

                Lack of transparency in the way organisations responsible for running nuclear power are run further deepens the mistrust among people. Government needs to take steps to make the organisations like NPCIL more transparent accountable. In this regard, the government’s move to make AERB an independent and autonomous body is commendable. Another area of concern is the fear that indegenous nuclear power programme would be neglected. This fear is very much valid. Our scientists have achieved phenomenal success despite the restricted environment they were forced to work in pre 2008. Today India’s scientists have pioneered the fast breeder technology and optimum use of thorium fuel cycle. No effort has been made by government to harness the intellectual potential of our scientists in the proposed new phase of expansion. Instead of focusing on joint research and development with other nations, we are seeking direct transplantation of foreign technology.

In this era of computerisation and digitalisation, the slogan of roti kapda makan has transformed into bijli, sadak , pani. Electricity which once was a luxury has become a necessity now. This should have a bearing on everyone. The previleged few must take cognisance of this and make efficient use of electricity. Government must encourage energy efficiency through star rating, awards etc. Our electric transmission and distribution systems have been caught up in cobwebs of time. It is hightime that modern smart grid technologies are put to use. The rampant corruption and maladministration in state electricity boards need to be set right. Populist schemes invovling distribution of free power leads to unsustainable use of resources and needs to be done away with.

India’s foreign policy is rooted in its tradition of non alignment. In order to stand by it, there is a need to avoid over dependence on outside support for energy resources. Therefore India needs to take every measure to diversify its options both in terms of resources and countries. For balanced energy mix, energy independence and security, climate change and avoiding green house gases, sustainable development, nuclear power must be pursued.  Along with nuclear we need to continue supporting research and development in other areas like wind and solar energy. With the rapid pace of urbanisation and penetration of benefits of growth deeper into the society, it is inevitable that energy demand will rise exponentially.

The rapid pace of urbanisation and penetration of benefits of growth deeper into the society, it is inevitable that energy demand will rise exponentially. In the current scenario, it is only nuclear power that has the capability to meet such a challenge. However this is not to say that nuclear is the only way, we must keep our mind open to any new development in field of power generation in future and harness new innovations to our advantage. Therefore while India goes big on nuclear it must not lose sight of other potential contenders which have the potential to fulfill the growing demand of indians.

i am back on prep4civils

hi all,

thanks for following my blog

i am resuming my postings of editorial summaries on prep4civils.com

however i will continue posting of links and optional notes on the blog

thanks

Downgarding banking system

1

·         Moody downgraded rating for entire indianbanking sector from stable to negative

REASONS

·         Concern over weakening loan quality

·         High inflation

·         Rising interest rates-> falling interest margins

·         Positives of indina banks

o   Adequately capitalised

o   Better regulated

Impact of downgrade

·         Cost of borrowing from overseas increases

Defects of rating process

·         Don’t capture the strengths and weakness of government ownership of most of indian banks

climate change and farmers

·         In last 2 decades popltn grew frm 5 to 7 bn in world

o   Hungry people 1 bn+

·         Rural poor  are the worst effected by climate change

·         2 bn people live on small farms

o   They produce 41% of India’s food grains

o   Women make up the majority

o   They are backbone of LDC economies

Way ahead

·         Provide  resilience building technologies

o   drought resistant seeds

o   new ways of rainwater harvesting

o   sustainable practices of agriculture

·         target vulnerable sections

·         strengthen grassroot institutions

·         broaden livelihood opportunities

·         enhance productivity and profitability of farmers

Irreversible climate change in five years

·         Lock in effect: anything built now which produces carbin will continue to do so for decades to come and this will lead to ireversible climate change

·         To keep climate change below 2 degree celsius, need to keep carbon emission levels below 450 ppm

o   Currently 390 ppm

·         At current levels of emission, will hit 450 by 2017

·         Abandonment of nuclear power will lead to more reliance on fossil fuels leading to further emissions

·         China expected to overtake EU wrt cumulative emissions(since 1900) by 2035

o   Hence both developed and developing countries need to take steps

o   Developed countries must agree to a time bound action plan

·         World energy outlook

o   Annual publication

o   Provides information on global energy consumption trends

·         Way ahead

o   Despite, recession, emission incrsd 5% in 2010

o   1.3 bn lack access to electricity in world

o   Need to work on affordable renewable energy sources