TOKYO -- India's new Prime Minister Narendra Modi and his administration may decide to lift the ban on foreign direct investment in the country's heavily-protected retail sector, a high-ranking Indian government official told The Nikkei recently.
Despite Modi's earlier campaign pledge to exclude the multi-brand retail sector from foreign direct investment, India Commerce Secretary Rajeev Kher said, "I think there is scope of change to modify its position at some point of time" in an interview with The Nikkei during a visit to Tokyo.
In India, foreign firms have been barred from making investments in the multi-brand retail sector. In 2012, the previous government led by the former Prime Minister Manmohan Singh decided to approve such foreign investment at a Cabinet meeting, but there has been limited progress so far.
An opposition party at the time, Modi's Bharatiya Janata Party voted against the move in a parliamentary session. Moreover, the BJP stated in its campaign manifesto, compiled in March this year, that "Barring the multi-brand retail sector, Foreign direct investment will be allowed in sectors wherever needed for job and asset creation."
Kher said that the new Commerce and Industry Minister Nirmala Sitharaman "is aware of the issue," denying that the previous government's decision is "frozen and kept in cold storage." He added that "there is discussion, thinking and conversations (on the topic). They are all ongoing," suggesting that some members of the new administration are pushing to remove the ban.
To reverse the BJP's campaign pledge, Kher said, "Decision-making has to happen at the political level, and the government can modify its decision to support FDI in multi-brand retail, maybe with some conditionality."
India's retail market is estimated to be worth about $600 billion, and the vast majority of retailers are privately-run small businesses who remain opposed to foreign retailer chains' entry. The country has already opened the market for the single-brand retail sector, such as foreign high-end brand shops, allowing 100% investment by foreign businesses.
Currently, India allows FDI of up to 26% into the defense industry as well as the insurance sector. Kher said, "There are discussions going on to increase the caps, and I am sure at some point of time a decision will be taken by the Cabinet."
He also referred to the deferred introduction of the goods and services tax (GST), saying, "We are very hopeful that this will happen sooner rather than later." The Modi administration is set to release its first budget proposal on July 10. Kher said, "This will be an opportunity for the government to lay down a road map."