Friday, November 25, 2011

The FDI Decision

Late in the evening on the 24th, I suddenly got a flurry of SMSes congratulating me about the FDI opening up for multi brand Retail. I was puzzled and also a bit amused. Puzzled because we are used to seeing many such decisions being watered down or even rolled back in the face of a larger issue where FDI regarding Retail might be sacrificed.

Amused, because of the premature celebratory mood. Of course the fact that the government has at least taken a stand now after going back and forth for years now is a cause to celebrate but is there enough in this cabinet decision for such an upbeat mood?

Well, I have my scepticism about this decision.

Firstly, the trend in the past few years has been the domination of coalition pressures on decisions. I will wait to see whether the adjournment of parliament extends to the next week and causes enough furore for any dilution or even roll back of this decision.

Second, this decision has already been announced with a major catch. The trade and commerce minister has gone on record stating that the final ground level implementation will be the state government’s prerogative because trade licenses, especially Shops & Establishment Act comes under their purview. What exactly does this mean? You are welcome to bring in big bucks, set up a corporate office and get a senior team in place. Then, go around to each chief minister to beg & plead to open stores?

Does this sound practical? In the current context only the Punjab CM has extended support to this decision. Most are silent and obviously some are vocal in their opposition. This has some very troubling implications.

Second are the various riders. Obviously the powers that be have very little clue about Retail and many of these conditions seem very food & grocery Retail specific. For example, take the clause of sourcing a third of products from 'micro and small industries’.  Take Toys as a category which hardly has any noticeable modern trade presence. If an international operator enters the country, 30% of their range has to be from local small scale industries or artisans. Sure, you can include the wooden toys of Srirangapatnam and a few such regional specialities. Will this add up to 30%? I don’t think so.

Does this enable at least the food and grocery formats properly? No. Take the other factor of 50% of  the investment needs to be in the back end. Contrast this with the reality of limitations like the APMC legislation, varied taxation and octroi, etc. What use will this back end be if there are other constraints that stop such chains from sourcing effectively?

What is the logic of limiting these operators to the top 50 odd towns based on population out of close to 8,000 towns in India? In fact this is an oxymoron to the arguments for allowing FDI in terms of employment generation. Should at least a part of these chains be mandated to open in regions which need local impetus? Then there will be overall growth of that region.

So, all I can say is so far so good. At least there is now a decision around which debate can be built and hopefully meaningful improvements to the policy made.

Lastly, there is an urgent need for experienced Indian Retailers to be involved in this and not only as providers as opinions. That would ensure some method to the madness and bring to fore a far more important and pressing matter.

When is Retail going to be accorded an Industry status?