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Cabinet note on retail FDI soon

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July 20, 2005 12:26 IST

In what could be a final settlement on the issue, the department of industrial policy and promotion is preparing a Cabinet note for allowing foreign investment in retail trading ventures.

The move follows a note from the department of consumer affairs, the nodal ministry for domestic trade and retail, to DIPP favouring opening up of the sector, especially as it will help agriculture.

Officials in the consumer affairs department said they had written to the DIPP after a report by Indian Council for Research on International Economic Relations last week made a strong case for opening up the sector to foreign investors.

The report had been commissioned by the consumer affairs department. DIPP officials said the draft Cabinet note will be circulated once it was approved by Commerce & Industry Minister Kamal Nath.

They added that the Icrier report, which had proposed 49 per cent FDI in the initial phase, would form the basis for the proposal. The proposal to open up the retail sector to FDI had been put on hold in the wake of opposition from the Left parties.

There was also a view in some quarters that India should not open up the sector before the agreement on services under the World Trade Organisation's Doha round of negotiations was completed.

Officials, however, pointed out that even if India was to autonomously liberalise the retail sector, it would not undertake any bindings in the sector at the WTO.

Even in the revised services offer to the WTO, sensitive sectors such as legal services, retail and auditing have been kept out, officials said. Icrier had said that India should undertake unilateral liberalisation.

The Icrier study pointed out that the present ban on FDI in retail had not acted as an entry barrier as foreign retailers were entering India through manufacturing and local sourcing, franchising, test marketing, wholesale cash and carry, distribution.

It had also suggested that India should not impose conditions like local sourcing or minimum capital requirement conditions and the concept of Maximum Retail Price should be done away with.
Monica Gupta & Sidhartha in New Delhi