Getting all of India to buy the FDI idea in retail

The recent proposal to do away with stringent riders if foreign direct investment is below the majority stake was spurred by the marked diffidence on the part of global retail giants to invest more in India.

Last year, the Government allowed 51 per cent FDI in multi-brand retail, subject to prior approval and fulfilment of strict conditions. While the move was announced with fanfare, investors were not as enthused. Apart from further rationalisation of FDI norms, other important issues need to be ironed out to encourage investors and fuel growth in the sector.

Central Sector Regulator

A typical feature of retail business models is the plethora of statutory approvals to commence operations and open outlets — consent for operating diesel generator sets, fire no objection certificate, trade licence, registration of warehouse, Food Safety and Standards Authority of India (FSSAI) licence, and so on.

In addition there are business-specific licences such as agricultural produce market committee licence, licence for sale and storage of dairy products and insecticides, and authorisation to play copyrighted music, besides approvals from local municipal authorities.

The lack of a central agency for single-window clearance adds to the challenge. Chasing multiple government agencies invariably results in project delays and cost overruns.

A central sector regulator may not be a panacea for all the problems, but it could significantly alleviate the pain involved. International anti-corruption legislations — namely, the Foreign Corrupt Practices Act, and the UK Bribery Act — have deterrent provisions with extra-territorial reach. Some leading global brands are under the scanner for corruption which, apart from severe penal consequences, could erode brand value.

Single-window clearance could, to a large extent, tackle corruption.

Getting A nod from States

Currently, States can implement this policy, and this discretionary power entails an element of uncertainty — the States can impose additional conditions. As of now, only 11 States have conveyed their approval, which means a significant part of the country is still out of bounds. This could be a dampener for global companies seeking a pan-India footprint. While the Government has issued clarifications on numerous issues, others still need to be addressed — such as sourcing restrictions amongst ‘group companies’, requirement of 30 per cent sourcing from small industries and so on, as they could impact business plans and strategies.

Keep it simple

The underlying objective of any regulatory regime is to simplify and encourage compliance. Regulatory transgressions can happen due to ignorance about the statutory approvals required. An easily accessible inventory of statutory approvals could make life easier for law-abiding corporate citizens. In mature jurisdictions, this practice is already in vogue, as it encourages compliance and promotes transparency and fair play.

The retail sector has immense potential, and foreign participation is necessary to provide impetus to growth. A simplified approach, with the right kind of controls, is the need of the hour. The administrative machinery should produce results — and, more importantly, be perceived as an enabler and not a bottleneck for growth.

The Government has moved in a positive direction and sent out the right signals for creating a conducive environment. It now needs to give a decisive push.

Harpreet Singh is Executive Director, and Pankaj Tewari is Senior Manager, Risk Advisory Services, PwC India

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