Retail-FDI lost in policy maze

Oct 18 2013, 04:04 IST
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SummaryFor FDI in multi-brand retail to take off, India needs to offer a better policy environment to the investors

More than a year after the government approved FDI in multi-brand retail with 51% foreign ownership, India has not received even a dollar’s worth of investment.

Now, retail-giant Walmart, which had a 50:50 JV with Bharti for wholesale cash-and-carry depots and was contemplating a retail partnership with the latter, has exited the JV and put the other plan on hold, the sole reason being regulatory hurdles.

Why is our regulatory environment not conducive? Why, even after protracted efforts to streamline rules, does the regulatory maze refuse to go away?

Let us reflect a bit on the Indian retail scenario—its challenges and opportunities, and, most importantly, its need for foreign investment. The Indian retail market is worth around $500 billion. The retail-scape is largely of mom-and-pop or kirana stores with organised retail occupying barely 5% of it. The

kirana stores source most of their stock from SMEs while some goods come from corporate entities. The supply- and distribution-chain for most of the goods that these stores sell are riddled with rigidities and constraints, creating inefficiencies which lead to high costs and compromise quality, thus eroding consumer satisfaction.

The lack of proper storage and transport arrangements leads to substantial losses of perishables. Post-harvest loss from vegetables and fruits alone is around R50,000 crore. Often, therefore, the quality of foodstuff reaching the table becomes a casualty. There are intermediaries aplenty between the producers of the goods and the consumers. Thus, the cascading effects of margins and taxes/duties along the supply-chain leads to high costs for the consumer. The retailers, too, are at the receiving end—without any real power to push for much needed improvement in logistics. The presence of Indian corporate big-wigs in the retail space—for almost a decade now—has failed to make any dent.

FDI-in-retail was conceived as a game changer—the government believed that MNCs could fill the void in infrastructure, bring in modern technology and practices, all the while developing a direct interface with farmers/producers. To this end, the government ought to have allowed 100% FDI in retail without any encumbrances. Instead, it has capped foreign equity at 51% and announced a host of conditions, which was a maze and remains one even after a lot of tweaking. Naturally, foreign investors feel very uncomfortable in putting their money in this market!

Why has the retail-FDI policy gone down this path? Did the government perceive any threat from 100% foreign-owned retail? Assuming for a moment that

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