The government dropped a key clause to protect the interest of small kirana shops in its policy for allowing FDI in multi-brand retail despite flexibility shown by the global giants like Wal-Mart and Carrefour on the original proposal.

In the discussion paper of the department of industrial policy and promotion (DIPP), it was suggested that the foreign retailers like Wal-Mart and Carrefour should integrate India's small retailers in their supply chain.

It was contemplated that some portion of the big retailers' sales must be through their supplies to the kirana shops.

"Should it be stipulated that a minimum percentage of the latter's (foreign retailers') sales should be made to retailers through special wholesale windows,?" the DIPP paper of July, 2010 threw it for the discussion of stakeholders.

While no percentage was suggested in the draft paper, an official who was associated with the policy formulation had suggested that 30 per cent of foreign retailers' sales should be to the kirana stores.

"Had it been done, the opposition from the traders would not have been that strong," he said.

But the clause was dropped despite willingness of Wal-Mart and Carrefour to integrate kirana shops with their supply chains.

"Given the close relationship of wholesale retailing to front-end multi-brand, we recommend that investments in front-end retailing stores be accompanied by investments in wholesale," Wal-Mart said in a communication to the DIPP.

Wal-Mart also suggested that "for every square foot of multi-brand retail, retailers should also develop an additional 1/3 square foot in cash-and-carry stores".

Similarly, French retail giant Carrefour had said, "we would be open to the concept of setting up distribution centers or cash and carry stores in the locations or regions of our future retail operations."

However, the FDI policy, which permitted 51 per cent foreign investment in multi-brand retail, dropped the original proposal.

The policy, because of political turmoil and protest from trading community, has been put on hold. The government is scheduled to make a formal statement on the issue on Wednesday.