FDI in Retail - In a great Hurry

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at the snap of my fingers...

As anticipated and predicted in earlier articles, the Government, headed by Prime Minister Manmohan Singh, is acting according to a script already written and finalized, as far as FDI in Retail sector is concerned.

After going through a mock drill and motions of a sham debate with various sections, the Government has made it known that FDI in Retail up to 51% would be allowed within a period of two weeks - when the Parliament is not in session. In announcing this decision, it has amply demonstrated that it brooks no objections on the subject and is prepared to ride roughshod over the interests of the stakeholders within the country. Its task is made easier by a direction-less opposition, abject acquiescence even by parties like NCP and RJD in the UPA formation and deliberately feeble protests by the Left parties. Perhaps, for all those who are not voicing their dissent, there is some political quid pro quo somewhere or other compulsions.

Various justifications advanced for the Government’s largesse in allowing foreign entities to have a share in a retail market worth at least $ 300 billion virtually for free are not convincing. China, which has only just opened up the Retail Sector, has done it as part of the obligations accepted by it under WTO, albeit somewhat ahead of the agreed timetable. But then, China has had a clear start ahead of India in putting its earlier inflows of FDI to good use to strengthen its economy.

In its efforts to ‘dress up’ the proposal and show a modicum of concern for the interests of the Indian stakeholders, it is said to be thinking of various riders, exactly as was foreseen in an earlier article. For example, it might prescribe a minimum equity capital of Rs. 50 crores. Will this be a one time, upfront investment? If not, over how long a period should the investment be made and if the investment is not made, would or could the foreign entity be told to pack up and go? The Government is also said to be thinking of geographical restrictions. It is said that retailers like Wal-mart and Tesco would not be allowed to set up outlets in city centers. As every one living in large cities knows, city centers just do not have enough space for new large retail outlets and the growth is taking place mostly in the suburban areas in any case. Further, under the proposed riders, large stores may not be allowed in small towns and cities below a certain population. This means that they would be allowed only in large cities. The large Global Retailers could not ask for a better restriction where they are forced by Government into the most lucrative areas and proscribed from entering non-lucrative areas. Moreover, how would large retailers be defined? It is also stated that a fixed commitment to source raw food products locally will be imposed. Would the commitment be in absolute terms or in some proportion to the total? If the local procurement were not of the prescribed level, would the Retailer be asked to pack up and go? Note, that the Government prescription would be to procure 'raw food products' locally. What about the much touted value added products, then? Such contradictions arise purely because such convoluted conditions are meant only to superficially take care of Indian interests while the real benefits are reaped by the Global Retailers.

Taking all these riders at face value, they appear to be just to placate and hoodwink the aggrieved local retailers and the country's entrepreneurs who will have to compete with world giants. In practice, they may not be feasible to implement or to even legally enforce.

The undue and unseemly haste, with which the Government is determined to open up the Retail market in India, particularly the all-important Grocery and Food Retail to outsiders, is inexplicable. It is also difficult to imagine that those who are parties to this decision are so naïve as not to know that, the real beneficiaries of this decision will be those who get to enter the lucrative Indian market virtually for free. The claims of benefits that might accrue to the country by way of relatively small amounts of FDI or by way of higher employment, benefits to farmers due to value addition etc. will, more likely than not, turn out to be exaggerated or imaginary. In particular, there is absolutely no difficulty in finding capital to invest in the Retail sector within the country and consequently, no need to look for foreign capital for this low priority area.

The Government is acting with great alacrity on a subject which does not deserve the focus of its attention when critical areas for FDI and pressing priorities that demand actions are relegated on the backburner. All this once again raises the vital question, which should exercise everyone’s mind:
Cui Bono – for whose benefit is this decision and what and where is the quid pro quo.

It is useful to recall the recent statement by a senior executive of Wal-mart to that company’s shareholders:

“In our six government meetings, we created a very positive image [of Wal-Mart] in what we think is a very important future market," Menzer said. "We've energized the FDI lobby and preempted the anti-FDI lobby in India. I believe we've told our story."

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