Government v/s FDI: Who will win the battle??

“Govt notifies 100%FDI in single brand retail”- Economics Times, January 10, 2012.

This day shall be marked in the history of the Indian Retail Industry as the Golden day that promised to bring a swarm of dream luxury brands, which every individual yearns for. It brought a reason for the retailers to smile about with the opportunities bundled with the investment.

Then one fine day IKEA placed the “IDEA” on the back burner and Zara faced a road block. FIPB played a villain shattering the dreams of many “retailers to be”.  Government’s policy tantrums yet again disrupted the incoming beatitude.

                         

A lot has been said and nothing has been done so far. To sum it up, it’s just empty words and a huge outcry. The negative impact of FDI in retail on small retailers has been the major concern while rest everything has been neglected. The future retailers have been out casted from the entire picture. From a student’s perspective, its positive effects have been sidelined as FDI is supposed to bring a throng of job opportunities and a chance to work with the international biggies.

India needs to be investor friendly. It must find a middle ground for this issue. It is disheartening to see the blindfolded attitude of the Govt towards the positive outcomes that could be derived from the successful implementation of FDI in the sector. FIPB has refused to accept the Scandinavian furniture giant IKEA’s plea regarding relaxation of the 30% sourcing norm. China has been exporting to India in huge numbers. These imports have already killed millions of small enterprises across the country, and they don't bring FDI. In such a case IKEA which is making a legal entry into the country is not allowed to do so. FIPB has also rejected the Netherland based ZARA’s proposal to enter India with the brand name “Massimo Dutti” saying that the investment for opening the stores is being made by Zara Holding rather than Inditex, the owner of the brand while according to the FIPP rules the investment has to be made by the owner of the brand.

Multi brand retail chains like Walmart are waiting with their eyes wide open in hope and anticipation. With the approval from 11 states & Union territories, UPA Government still failed to gain the support and cooperation of its own allies.

Undeniably, the government is now seriously considering tweaking the definition of small and medium enterprises (SMEs) for giving a boost to single brand retail in the country. Aiming at bringing in more foreign investments in the country, the government wants to remove hurdles in way of such investments from across the sectors, including single brand retail. As per the present definition, all entities having investment of $1 million in plant and machinery would fall under the ambit of SMEs for the purpose of single brand retail. However, as the sector thrives, SMEs would grow and the $1 million definition would need tweaking.

As far as local retailers are concerned, breaking even has not been a challenge for them despite of the presence of the Indian retail giants like Big Bazaar, Reliance, ABRL etc. It is just a hype created by the government along with the opposition playing a spoilt sport. As for them, making a mountain out of a molehill and chanting a chorus of negativity has become a common phenomenon. But by doing this the Govt is subduing the advantages to be derived from the FDIs in the retail sector like the elimination of/reduction in the intermediaries’ cost, the benefit of which will not only be availed by the farmer but will also be passed down to the end consumer, more employment generation, growth opportunities etc. Also, The Economic Survey has pitched for allowing FDI in multi-brand retail, stating it could help tame food inflation and improve agri-commodity management.

The retailer’s cry for FDI and their longing to outshine others still remains unfulfilled. How long the lacklustre attitude of the Govt will last, is not known. But considering the current economic conditions with regards to the impact of the euro zone crisis, falling value of rupee and policy paralysis, one thing is for sure that FDI has become the Holy Grail for the Retail Fraternity. The hunt for which is on!!