FDI in retail or 'Politician's Football'

FDI in retail has been tossing between politicians for years now, rather amending loopholes and giving it a go.
FDI in Retail

It was in 2004 when former finance minister Yashvant Sinha mentioned FDI in retail in their vision document for the general elections. Today BJP is blatantly opposing a glimpse of their own vision in 2004. Even UPA’s major allies, instead of amending the loopholes in the policy, are willing to put it on a backburner. Left remains committed to the habit of opposing any path breaking decision. In the meanwhile investors and capitalists wait and watch the high level political drama and Indian Retail Industry which is going through a rough patch finds “FDI in retail” becoming a political “Football” for the Indian political parties.

It was November when most foreign investors, policy pundits and economists were lauding the Congress party's decision to allow 51% FDI in multi-brand and 100% in single-brand retail. Sadly, it was all short-lived. Compelled by the unrelenting allies, Manmohan Singh’s government has been entangled to remain handicapped since then. Though 100 percent FDI was given a green signal in January, 2012 but since then government has received only a few applications from the existing brands to invest 100 percent. World’s second largest retailer, Carrefour is freezing its expansion plans in India. This implies that the norms are not practical for the players. A good part of the clause is, 30 percent mandatory sourcing from the local manufacturers like craftsman, artisans and farmers. But a glitch attached to this is that the total investment in plant and machinery should not exceed $1 million. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. IKEA, which has proposed to invest Rs 10,500 crore to set up single brand retail stores in India, has decided to wait until government relaxes the sourcing norms. IKEA had asked the government that it must be allowed to continue sourcing from small units even after the vendors have crossed the mandatory USD one million investment limit. The policy intends to support the domestic players but eventually on crossing USD one million mark, the same policy will ensure that their business expires.

FDI in multi brand retail has already been put on a waiting list. The bill which was proposed in November last year has been constantly bolted down by various political parties.

Need of the hour:

The share of organized retailing in India, at around 2%, is too low, compared to 80% in the USA, 40% in Thailand, or 20% in China, thus leaving the huge market potential largely unexploited. The Indian farmer typically gets only a third of what the final consumer pays, instead of the two-thirds that his counterparts do in countries that have organized retailing. India is the second largest producer of fruits and vegetables in the world, but almost 30 per cent of these go waste for want of storage and processing facilities. With the kind of infrastructure and capital India has, the situation will not change much in the coming future without foreign players coming in.

On the other hand, FDI in Countries like Germany, South Africa & UAE have benefitted from modern retail format. Brands like IKEA, a large-format furniture and home store, which has invested enormously in skill-building for small suppliers from all over the world. Such brands have a strong stake in building local suppliers not just for the Indian market, but also for their global market, thus adding to employment and exports revenue. However, the interesting fact is that the store chain in UAE that is gaining fast and is offering strong competition to Carrefour is not some other European or American chain; it's a chain called Lulu started by a simple, hardworking, enterprising Indian. This store chain is successfully expanding all over the Middle East and has earned the respect of retail experts the world over. If we talk about Indian Hero Group which started as a cycle repair shop at Chandni Chowk, New Delhi, catapulted its presence in the two wheeler market only after a partnership with Japan’s Honda.

The fact is that the opposition is against the FDI in retail issue less because they care about it and more because they keep searching for issues to protest. These parties are just cashing out a chance to say that the government doesn’t care about the poor farmers, and grab their votes.

While there is no second thought about the fact that government is not strong enough to take quick and bold decisions, another point of conflict is, whether they are serious about the policy or are they just trying to run a campaign for vote bank, on the benefits of FDI in retail: new manufacturing activities; new jobs, lower prices of products; benefits for the farmers at all. If not, government would have sorted out the loopholes in the policy.

IKEA’s concern over FDI issue, months back was in cabinet’s court, then it was with the Department of Industrial policy and promotion (DIPP) which had to frame the policy on FDI is now awaiting views of the foreign investment promotion board (FIPB). Multi brand FDI is already dwindling between UPA and opposition might be left at state’s discretion whether they adopt it or not. Brands like Walmart and Tesco have to wait and watch till this ‘political football’ finds the Goal.

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