FE Editorial : Signal brand retail

Written by The Financial Express | Updated: Dec 28 2012, 06:38am hrs
Full approval for Ikea says Indias open to business

If the year began with the Supreme Court cancelling 122 telecom licences issued by A Raja and throwing the industry into a tizzyafter all many of these had been flipped over at large premiumsit may just end with some good cheer. After summoning the courage to hike FDI limits in single-brand retail, the government even managed to get Parliament to ratify the entry of global multi-brand retailersall this while not having a majority in the Rajya Sabha. Yet, when it came to clearing Ikeas R10,500 crore proposal to establish shops in India, the government cleared only a partial list of products that the Swedish retailer could sell. Ikea, however, stood its ground and sent a revised proposal to the government with all the banned products included and, going by the statements made by commerce minister Anand Sharma, the FIPB may just clear this when it meets on December 31.

Indeed, the government has shown great sagacity in the case of rules pertaining to single-brand retail in the past. As per the original rules, single-brand retailers like Ikea would have to source 30% of their produce from SMEs in India; but the definition of SMEs being as restrictive as it was in terms of capital invested, the moment an Ikea developed a supplier who invested in equipment to come to Ikea standards, the supplier would cease to be an SME. When, among others, Ikea pointed this out, the government was quick to dilute the mandatory purchase from SME clauseunfortunately, the clause remains restrictive in the case of multi-brand retailers like Walmart. Though given how contentious opening up multi-brand retail has been, and for so many years, getting Parliament to clear this even with several restrictive clauses was a big step forward.

If the FIPB does clear the Ikea proposal, it will be fitting end to a year that saw some good (Vodafone won its case against the government in the Supreme Court) and a lot of bad (the government reversing the Supreme Court verdict with a retrospective amendment was the most prominent of these, but there were many more). It will also be in keeping with the governments attempt over the last six months to try and undo the damage done by the budget and several years of policy paralysis. The large sums of FII and FDI monies that have come in$23 billion and $25 billion respectivelysuggest that not all of this is lost on foreign investors amid the bad news that the year saw in abundance.