FDI policy is no substitute for state laws

Written by Rishi Raj | Updated: Dec 6 2011, 09:02am hrs
Ever since the Union Cabinet decided on November 24 to allow up to 51% foreign direct investment in multi-brand retail and 100% ownership by foreign firms in single-brand retail, all hell seems to have broken loose. The Opposition parties have slammed the move, some of the key allies of the UPA are also dead against the move and even some Congress-ruled states have reservations on the issue. So strident was the opposition from a key allythe Trinamool Congressthat the government had to finally put the move on hold. This means that though the Cabinet has approved the decision, the notification putting out the rules and regulations will now be put in abeyance; thus the move will not get operationalised. The opposition to FDI in retail may have come from different political parties and traders groups but the concerns are the samethe move would

uproot the kirana stores, large number of self-employed people would get unemployed, MNCs would control the market, which would lead to price volatility, etc.

In a conversation with Rishi Raj, the department of industrial policy and promotion (DIPP) secretary PK Chaudhery takes on all such apprehensions and shreds them to pieces with the precision of a surgeon. On the contrary, he points out how this bit of reform would benefit the manufacturers, farmers and consumers, and state governments would be free to decide whether they wanted foreign retailers to set shops in their states.

Would the move lead to predatory pricing by foreign retailers

This is just not possible. The competition laws in the country are in place and the Competition Commission of India is fully functional. In fact, the CCI chairman has already said that he would look into such issues if they arise.

Would the entry of foreign retailers lead to an influx of imported products and hurt domestic manufacturers

The import of products is governed by the countrys import-export policy and not the FDI policy. The present policy is an FDI policy and not an import-export policy. Having said that, I would like to clarify that if, as a country, we seek access for our products in overseas markets, we would also have to provide overseas manufacturers access to our markets. There has to be a balance between what we get and what we provide. For any aberrations, there are mechanisms like anti-dumping duties and safeguards that can be resorted to if the need arises.

Will workers be treated badly by the foreign retailers

The FDI policy does not change the labour laws and they remain what they are, so any such assumption is wrong. In fact, when I was in the commerce ministry, the industry would often say that our labour laws are very strict!

The Central government did not consult the state governments...

Prior to the policy measure, DIPP had put up a discussion paper and all the stakeholders had responded with their suggestions. Once we took a decision, we put it on our Website. Anyway, this is an FDI policy and in no way substitutes any of the state laws. To make laws on FDI is the prerogative of the Central government and the states are free to make their laws and decide whether they want foreign retailers in their states or not.

Will the entry of foreign retailers lead to price volatility

This is wrong. Price volatility is not linked to production, but distribution aspects. As a result, farmers dont get a good return on their investments and consumers end up paying a high price. The opening up of multi-brand retail would remove the inefficiencies in the supply chain and create value for manufacturers, farmers and consumers.

If, after almost five years of allowing 100% FDI in cash and carry stores, MNCs have not invested much, why should the government optimistically think that they would invest in developing back-end infrastructure

Investments in back-end so far have been slow because foreign retailers do not see any link between the back-end and front-end stores as they are prohibited from operating in the latter sphere. Once investments by them are allowed in the front-end, they will invest more heavily in the back-end because the linkage would be established. Not only this, even the design of products and skills employed would be upgraded.

Will foreign retailers wipe out local kirana stores

This notion is totally wrong if global experience is taken into account. With the opening of multi-brand retail, both organised and unorganised retailers have grown. China is the best example. Multi-brand retail has been open to foreign

investment there for the last several

years and still only 20% market is with

organised retailers.