Govt plans regulator to quell retail FDI dissent

Written by Timsy Jaipuria | New Delhi | Updated: Nov 19 2012, 03:33am hrs
Anand SharmaAnand Sharma, commerce & industry minister
The government is likely to set up an independent regulatory body to check anti-competitive practices in the retail sector, a move that coincides with the imminent entry of cash-rich multinational corporations into Indias fast-growing multi-brand retail trade. Bracing for a stormy winter session of Parliament over its recent decision to allow 51% foreign direct investment (FDI) in multi-brand retail, the government reckons that the plan for a pan-India retail regulator could be used as a key bargaining tool to silence the Opposition.

According to officials, the Department of Industrial Policy and Promotion (DIPP) has prepared a note on this where it explains how the regulator can help in the rollout of the retail FDI policy and prevent the reform initiative from becoming unpopular. The proposed regulator, the sources said, would prevent any eventuality of retail biggies eating into businesses of small retailers through anti-competitive practices like predatory pricing.

The recent news about investigations into alleged corruption and bribery by the worlds largest retailer Walmart has also spurred the governments move.

Sources said that the proposal to create the retail regulator also came up for discussion during the Cabinet meeting on allowing FDI into the sector. The DIPP, though convinced over the need to have a regulator, is understood to have indicated that this could be considered at the post-implementation stage. The sources also confirmed that the matter was discussed at various meetings after which the Cabinet cleared the new FDI policy.

The proposal has also got support from the ministry of labour, which had earlier made a strong case that FDI in the sector should be conditional on agreement over having a suitable regulatory mechanism. Apart from predatory pricing, the labour ministry also wants the regulator to periodically review the status of employment in the sector following infusion of FDI and report it to the ministry for guidance.

The initial thinking is that the proposed regulator would just look into the affairs of multi-brand retail trade with FDI component. It could look into the entire spectrum of multi-brand retail trade at a later stage.

The mandate of the regulator at the Centre would be limited as various other functions of the retailers would be governed by states that would grant licences to them under the Shops and Establishment Act.

While the government feels that the regulator could balance multi-brand rollout, analysts say that India would be the first nation to have a retail regulator if the proposal kicks in.

However, Arvind Singhal, chairman, Technopak Advisors, said that since the majority of the sector is in the unorganised sector, having a regulator would not be of much use. "The government has created a very complex policy. Taking care of (implementation of) labour laws is possible through other means," Singhal said.

According to a study by the Department of Management Studies,Garden City College in Bangalore, the estimated size of the Indian retail industry is approximately $470 billion with an annual compound growth rate of 11%. Incidentally, the share of organised retail is relatively small at $26 billion, which is just 6% of the total market compared with a typical share of 70-80% in North America and Western Europe and 20-30% in the Pacific Rime countries. Indias share of organised retailing is significantly lower than in many other Asian countries such as China (20%), Indonesia (30%), Thailand (40%), Malaysia (55%) and Taiwan (81%).

In the controversial area of FDI in multi-brand retail, the DIPP has said state governments and Union territories would be free to take their own decisions. At least 30% of the value of procurement of manufactured and processed products should be sourced from small industries which have a total investment in plant and machinery not exceeding $1 million, the DIPP said.

The minimum amount to be brought in by the foreign investor would be $100 million and outlets may be set up only in cities with a population of more than 1 million. At least 50% of FDI should be invested in back-end infrastructure within three years of the first tranche, the policy said.