FDI policy changes for retail reflect muddled thinking

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Published: January 24, 2019 12:33:09 AM

The government has recently imposed serious restrictions on e-tail, but that is further evidence of the government’s belief in deliberate confusion as (politically) sound strategy for retail FDI.

fdi, foreign direct investment, fdi policy, fdi in indiaThe latest changes to India’s FDI policy for retail reflect continued muddled thinking on the part of the government.

The latest changes to India’s FDI policy for retail reflect continued muddled thinking on the part of the government. After creating the single-brand/multi-brand distinction in allowing FDI in retail in a bid to allay the fears of Indian organised and kirana retail, the government has now eased the local sourcing norms for FDI in single-brand retail. Only, it has created another absurd classification in the process—large and small single-brand players. The government is mulling over a proposal to allow large foreign investors—they should be bringing in $200-250 million in the first two-three years—more time to comply with the 30% local sourcing condition it has set for 100% FDI via automatic route in single-brand retail. Currently, all 100% FDI in single-brand retail must comply with the local-sourcing rule upon completion of the first five years of setting up shop in India. While this makes it easier for an Apple or an Ikea to establish a fully FDI-funded presence in the country, it skews the playing field for smaller players.

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Successive regimes at the Centre, playing to a gallery of Indian organised and kirana retail, have mastered the art of creating complicated regulatory structures for foreign investment in organised retail. But, the unfortunate bit is that the government keeps tripping up on hurdles of its own creation. For instance, even though the FDI policy for multi-brand retail remains heavily restrictive—the unstated logic is that a liberal policy will negatively impact Indian organised and kirana retail—the government let such investment come in in e-commerce, which, arguably, has had a larger impact on Indian organised and kirana retail. Indeed, the ‘investment in B2B e-commerce ok, not B2C’ fig-leaf allowed e-commerce players in India to plead that they were merely marketplaces facilitating vendor/retailer-buyer linkage. The government has recently imposed serious restrictions on e-tail, but that is further evidence of the government’s belief in deliberate confusion as (politically) sound strategy for retail FDI.

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