Foreign direct investment (FDI) in retail was supposed to be the government's signal that it was not paralysed or lethargic. The reform would have signaled to investors, economists and the world that India had the resolve to carry out reforms. But the idea is now stuck. Here is why.
FDI in retail is an economic reform, which would allow global chains like Wal-Mart Stores Inc and Carrefour to own up to 51 percent of retail ventures. The policy would let foreign retailers own up to 51 percent of supermarkets and 100 percent of single-brand stores. The policy doesn't require parliamentary approval, but foreign retailers must get approval from state governments where stores will be located.
The government, as a measure of protection, has said foreign retailers would have to source 30 percent of their goods from small industries.
A Citi report says $15-20 billion in FDI could flow into the country over the next 10 years as a result of FDI in multi-brand retail.
The report also says the move would help enhance the share of organised players in the overall retail sector, which currently account for about six per cent of India's $470-billion retail market
Multi-brand retail in India is largely in the unorganised sector dominated by neighbourhood kirana stores and there is a concern among political parties and traders that these stores would be affected by the entry of global retailers.
India's stellar economic growth is slowing, the rupee has skidded to record lows and inflation is stuck close to a double-digit clip. Faced with this predicament, Prime Minister Manmohan Singh seems to have weighed the benefits of opening a $450 billion market to foreign investment.
Kaushik Basu, one of Singh's close advisers, says allowing global chains to open their first stores in India would be one of the most effective ways to help the country deal with food inflation, which stands close to 10 percent.
But the UPA seems to have misjudged the political mood on this reform decision. The Trinamool Congress and the DMK, allies which give the UPA government a parliamentary majority, have opposed FDI in retail. The opposition, of course, has united to reject the idea and it has stalled Parliament.
The government failed to convince the opposition, and even some allies, on the reform. "The government has implemented the policy of FDI in retail after lobbying of companies in the U.S. and other countries. We are totally against this," said BJP leader Murli Manohar Joshi after an all-party meeting on Tuesday.
Learn more about FDI in retail, read up on these articles.
FDI with conditions
The government is likely to allow global supermarkets such as Walmart, Tesco and Carrefour to set up deep discount stores in India, but with a few conditions. Read more
Retail India: We are open now
Corporate India, expectedly, cheered the move terming it as a "game changer" that will reduce wastage, bring down costs and create millions of jobs. Read more
Is it a threat or not? Small retailers have mixed reactions
While some shopowners cheer the FDI in retail, small retailers fear loss of livelihood and income from mega stores of transnational corporations terming the move as "a bailout package for large corporations". Read more
So can single brands be far behind?
The Union cabinet's decision to allow upto 100% foreign direct investment (FDI) in single brand retail will pave the way for marquee retailers such as furnishing giant Ikea and sports goods retailers to set up exclusive outlets in India, managed and owned entirely by them. Read more
Under 3 promises, 2 politics & 1 policy of FDI in retail
The full-page advertisements in the papers justifying the government's well-conceived but badly-timed opening up of retail to foreign direct investment has three promises for the rest of us - farmers will get higher prices for their produce, consumers will pay lower prices to buy those products, and workers will benefit from more jobs. Read more
Only the unpatriotic will oppose FDI in retail
Short sighted! Self-seeking! Cynical! Even unpatriotic!
That's the only way to describe the opposition of the BJP, the Left and sections of the UPA to the imminent entry of large global retailers into the country. Read more
(With Agency inputs)