Retail sector needs swadeshi reforms

During the debate on Foreign Direct Investment (FDI) in multi-brand retail in 2012, the then Leaders of the Opposition – Sushma Swaraj in the Lok Sabha (now External Affairs Minister) and Arun Jaitley in the Rajya Sabha (now Finance and Defence Minister) – argued eloquently against the policy and urged the UPA government not to succumb to international pressure. The arguments fell on deaf ears.

Earlier in September 2012, the UPA government had announced its policy of permitting 51 per cent FDI in multi-brand retail. The policy came with accompanying riders. Virtually admitting that they did not achieve a consensus, the UPA left it to the states to decide if they would permit large-format foreign retailers within their borders. Promptly, a majority of the states declared that foreign retailers were not welcome in their territories. As the Congress lost state elections in Delhi and Rajasthan in December 2013, the newly elected governments in these states also declared they would not permit big multi-brand retailers.

After the policy announcement, Walmart, which had spent millions and lobbied the hardest, broke its partnership with Bharti to operate only cash-and-carry wholesale stores. Carrefour, the French retail giant, announced recently that they were winding up in India.

Tesco is the only multinational retailer that has inked a 50:50 joint-venture with the Tatas. This move is against the background of Tesco’s worst sales decline in the UK in decades, and the news that its CEO is being replaced. It is not unusual for public companies to show positive news by inking international expansion to shore up stock market sentiment.

The BJP’s election manifesto clearly stated that the policy would be reversed. Both Amit Shah (now President of the BJP) and Nirmala Sitharaman, Minister of State for Commerce and Industry under whose remit the policy falls, have articulated that the new government stays opposed to FDI in multi-brand retail. Despite these assertions, speculation continues that the FDI policy would not be reversed.

In reality, the policy is a stillborn one. With the State of Andhra being split into Telangana and Seemandhra (the Congress lost the elections in both States), only the two major States of Maharashtra and Karnataka have accepted the policy. With State elections in Maharashtra in a few months, a possible change in the State government could reduce the geographical area for this policy even more.

What should the Modi government do about this policy? For the moment, nothing. The policy framework is such that it is highly unlikely that any multinational retailer will enter India to operate in such a limited geographic area.

The situation presents an excellent chance to the BJP to show that they were not merely debating the issue in Parliament, but will actually do something about it. The following initiatives to streamline the ecosystem will go a long way:

1) Improve the supply chain infrastructure. This includes proper market/mandi-level facilities for trading, storage and handling capacity, waste reduction, and improving roads and road transport at the local level.

2) Build a cold storage chain across the country. The Prime Minister should declare that all farmers should be able to avail of cold storage facility near their place of cultivation.

3) Straighten out anomalies in the Agriculture Produce Market Act to ensure that the system is serving all constituents i.e. farmers, consumers and traders.

4) Create a reserve stock mechanism for onions, tomatoes and potatoes, the three most important vegetables. The key objective would be to ensure availability of these staples throughout the year at reasonable prices.

The policy on FDI in multi-brand retail may have gone into cold storage now. But there is a tremendous opportunity to improve the efficiency of our large and disaggregated wholesale and retail system, deliver steady prices to farmers and consumers, and protect the employment of millions.

India can show the world that its indigenous model offers an excellent alternative to the oligopolistic big-box retailers of the West.

The writer is Group CEO, RK Swamy Hansa. The views are personal

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