FDI in Indian Retail Sector: Groundwork for Effective Implementation

Abstract

After being subject to incessant political discussion, debate and protest since it was introduced, the policy of Foreign Direct Investment (FDI) in Indian retail is now no more a myth or a distant dream. The ruling party recently passed the trial by fire in both Houses of Parliament, and a policy that is largely hailed as reformative in nature received the assent of the ruling class. Industry body Federation of Indian Chambers of Commerce and Industry (FICCI) recently said that the size of India's retail industry is expected to more than double to $1.3 trillion by 2020, led by an estimated 25 percent average annual growth in organised retail if overseas investment is permitted in the sector. Currently, the organised retail sector holds a paltry 7-8% share, while a large chunk of all retailing activities are traditional/unorganized. This stunted growth of organised retail will witness a makeover following the opening up of the retail sector to FDI. Thus, it is no question of primacy that it will usher in a new era of economic reforms that will provide the adequate boost to countermand the slump and refurbish international belief in the growth story of India Inc., but, only if it is implemented soundly. In this stride, a self-assessment test of our economic, political and regulatory framework to meet the requirements for effective enactment without drawbacks is sure to reveal some grey areas. The findings of this study will identify such key issues and lacunae that need to be tackled with before the influx of foreign direct investment. These include the issue of major global retailers exercising monopolistic practices by way of large-scale procurement at rates that will be subversive to the interests of suppliers and farmers, predatory pricing and cartelization to destroy businesses of the unorganized retailers, the need for stringent local sourcing norms which cannot be flouted or over-ruled on a case to case basis, the role of politics in State specific enactment of the FDI in retail policy, etc. One of the major issues raised by the anti-FDI lobbyists was that the Indian retail sector, particularly the organized retail sector being under-developed and in a nascent stage, this domestic retail sector should be allowed to grow and consolidate first, before opening up the sector to foreign investors. Since this demand cannot be met with anymore, the need for strong governmental action in extending parallel developmental support to the MSME and unorganized retail sector will also be discussed at length. Finally, solutions and recommendations for effective implementation will be put forth for consideration. Only the governmental action in ensuring that proper frameworks are in place before the advent of FDI in retail will define whether it becomes a game changer or a failure. More than ever, now is the need for lasting reforms to take root in the Indian economy, and ensuring the efficacy of the FDI in retail regime will go a long way in achieving this goal. For this to happen, it necessarily needs to be free from controversies and should cater to the interests of the populace and not to that of the global retail giants.