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India likely to allow more FDI in retail, real estate sector

PALLAB BHATTACHARYA, New Delhi
India is likely to firm up its policy on allowing foreign direct investment (FDI) in its booming retail and real estate sector in the next couple of months.
Commerce and Industry Minister Kamal Nath disclosed this to reporters here yesterday on the sideline of a meeting of IndoAmerican Chamber of Commerce on infrastructure sector.
"We are examining all the parameters and hope to come out with a policy in the next two months," the minister said.
Asked if FDI in retail sector will be part of India's negotiations on services at WTO which have to be submitted before May 31 this year, he said, "We have had discussions with players in the retail sector. We want incremental FDI in this sector. However, we do not want FDI which would displace the existing investment."
"Our offers in investing overseas (Foreign banks) and consumption of services abroad would be driven by what we receive in business process outsourcing from
developed countries," Nath added.
Although the Indian government liberalized FDI in telecom from 49 to 74 percent and 40 to 49 percent in civil aviation in the face strong resistance from Left Parties which provide crucial support to Manmohan Singh government, the FDI in retail sector has been another ticklish issue.
However, the commerce ministry is upbeat about the possibility of employment-generation in branded retail sector, sources in the ministry said.
The consumer affairs ministry seems to be in favor of FDI in all segments of retail sector including food and grocery as this would help domestic producers to go for tie-ups with multinational giants who are already sourcing from local firms.
The question, however, remains if FDI in retail sector would hurt small retailers. The government also has task to convince the domestic retailers.
A government mid-term review of the economy has suggested FDI in retail sector saying this will encourage value addition for agricultural products.
The size of Indian retail market is estimated at Rs 5,88,000 crore of which the unorganised sector is worth Rs 5,83,000 crore. The organized retail market includes food and grocery estimated at Rs 600 crore.
Nath said FDI in real sector should be driven towards construction and not just investment in land holdings.
India has seen a big jump in FDI inflow of two billion dollars in 2004 up from one billion dollar in 2003 in this sector, according to official statistics.
The government has succeeded in removing a lot of bureaucratic hassles in FDI approvals.
A World Bank report on India's investment environment in 2004 said labour laws, water supply and power situation are among the reasons impeding larger FDI inflow.
Foreign investors are also keeping a close watch on how finance minister keeps his words on hiking the FDI ceiling in insurance sector from 26 to 49 percent when he presents his budget in Parliament on February 28.