Food Inflation in India

Opening up multi-brand retail for up to 51 percent foreign direct investment would help curb inflationary pressure and modernize the sector. This will allow global retailers like Wal-Mart, Carrefour and Tesco to enter the Indian market through strategic partnership in the multi-brand retail segment. These supermarket chains like Wal-Mart and Carrefour would modernize the retail sector in India.

Food inflation in India can be reduced by 50-70 basis points by allowing foreign direct investment in the retail sector as it would ease massive bottlenecks in the supply chain by reducing waste and improving the efficiency of the business model through supply chain management. Getting foreign investment is one part, but the real benefit will be that it will help modernize the retail sector and control food inflation, a big problem at the moment. The move would send a positive signal not only to foreign investors but also domestic investors who were worried that the government was suffering from a policy paralysis. The committee of secretaries has also recommended that at least half of the foreign investment in any project should be invested in back-end infrastructure like cold storage chains and warehouses which will significantly reduce the wastage and modernize the logistics and supply chain.

Indian laws do not allow foreign direct investment in multi-brand retail, and cap it at 51% in single-brand retail and 100 percent foreign direct investment in cash and carry wholesale trade. No overseas investment is allowed in multi-brand retail. However, foreign investors can invest in wholly-owned wholesale back-end retail operations in India.FDI cap of $100 million as suggested by the committee of secretaries would provide sufficient safeguard to small retailers.

Organized retailers, both in India and abroad, have been pressing the government to open up the retail sector for foreign direct investment, lured by the prospects of operating in a $50 billion market with a population of 1.2 billion people. The size and growth of the Indian market, growth of Indian economy even during the economic crisis, huge population and rising aspirations are the key aspects making the Indian market attractive to foreign retailers.

Effect on Mom and Pop stores: The debate, however, has taken a political turn over the years with the opposition and some key allies of government raising concerns over potential loss of business to small Indian retail stores. They have been opposing the move saying the entry of multinationals would put the small retailers out of business.

However, analysts argue that given the size of the Indian market there is enough space for small retailers as well as big supermarkets to flourish side by side.As the business models of supermarkets and small retailers are different. Earlier, in July, the ministry of commerce and industry issued a discussion paper on the subject, inviting comments on various ideas, including