FDI tweak misses out multi-brand retail again

Wednesday’s decision by the Union Cabinet to automatically approve 100 per cent foreign direct investment in single-brand retail might burnish the government’s image as a reformer but does little for organised retail in India.

At most, it shaves off maybe a month or so from the time it takes for a prospective foreign retailer to get the permissions necessary to set up business in India.

“Till now, it took foreign investors anywhere between two and six months to get approvals. Making the approval process fully automatic makes this process shorter and the paperwork reduces,” said Pinakiranjan Mishra, Partner and Sector Leader for Consumer Products and Retail, EY.

“This improves the ease of doing business in India, saves a considerable amount of time for the management at these companies, and it’s a great signal to prospective investors. But I don’t think this move alone will open the floodgates in foreign investment in retail because whoever wanted approval in single-brand retail so far got it without much difficulty.” However, the big-bang change that the government is unwilling to take on is allowing foreigners into multi-brand retail — that can make players like Walmart, Metro Cash and Carry or Carrefour your local supermarket.

But the narrative of foreign multi-brand retailers, as it stands, threatens the political capital that Prime Minister Modi gained as protector of traditional small retailers, a key vote bank.

“It’s difficult for me to say what exactly is holding the government back from allowing foreigners in multi-brand retail, because consumers stand to be benefit and supply chains can improve,” another industry expert said.

“But organised retail is a small portion of the whole retail picture, and even then, it can only be concentrated in cities, and it’s a fractured market. So, the impact on small-time traders may not be as great as we imagine.” Industry insiders say that for 100 per cent FDI in multi-brand to become a reality, the government will have to change its sales pitch to its core vote bank. “One way to do this,” a senior executive at an organised retailer who did not want to be named, said, “is to tinker, maybe, with local sourcing norms.

“For example, the government can ask that a higher percentage of products in the non-food category be sourced from local producers. So, even if the seller is a foreign name,” the person said, “the products are Indian. This can tie in with Modi’s ‘Make in India’ slogan.”

“The government sees the economic rationale to this,” the person said. “But it’s going to be a tough narrative to sell.”

Especially after the recent Gujarat elections in which the BJP sees its position as the numero uno party threatened, the chances of a major change in policy for organised retail appear to be slim.

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