FE Editorial : Selling the FDI idea

Written by The Financial Express | Updated: Nov 20 2012, 07:49am hrs
As soon as the Cabinet cleared 51% FDI in multi-brand retail in September, it expected a maelstrom of dissent and resistanceespecially during the winter session of Parliament. The fact that the government is reportedly considering the creation of an independent regulator to check anti-competitive practices in the retail sector is thus a move to allay fears that big MNCs will come in to Indian markets and dominate them to the detriment of smaller players. The idea for such a regulatormooted by the Department of Industrial Policy and Promotionis a good one. Companies like Walmart have considerable clout and though it wont be easy to compete with kiranas, let alone establish a monopoly, Walmart for one has been accused of anti-competitive actions in the past in various countries. A well-functioning regulator can help ensure this doesnt happen in Indiacertainly the plethora of complaints against organised retailers will get a fair hearing.

There are, however, a number of issues to be kept in mind before such a regulator is set up. The first issue is that, as Arvind Singhal, chairman, Technopak Advisors, says, the regulator will have a limited impact because the vast majority of the retail market in India is unorganised. Various studies estimate the size of the Indian retail industry at $470 billion, with organised retail accounting for only 6% of this market. The very definition of unorganised is that it doesnt come under any regulatory norms. Another issue to be taken note of is that, as things stand, states have greater control over the functions of retailers operating within them than the Centre does. A central regulator might find it has nothing much to do. The power sector model of a central regulator overseeing various state regulators may be a good one to follow.