FDI in retail: The tussle carries on!

Retail sector in India is predominantly unorganised, having one of the highest density of retail outlets per capita in the world and lowest per capita retail space. Only 2 per cent of the Indian retail sector is organised while this has been 20 per cent, 80 per cent and 70 per cent in case of China, USA and UK respectively.

As per the existing policy of the government, foreign direct investment (FDI) is not allowed in multi brand retail whereas this has been accepted in many other countries with or without restrictions.

Most countries liberalised policies for opening of FDI in retailing long ago. While China allowed FDI in 1992, Brazil, Mexico, Argentina followed the footsteps of China in 1994. South Korea too joined the league in 1996, whereas Thailand and Indonesia allowed it in 1997 and 1998 respectively.

However, India, at present, remains alien to FDI in retail, the extant policy allowing FDI up to 51 per cent with prior government approval, in retail trade of ‘single brand’ products. The guidelines for the same read as: Products to be sold should be of a ‘single brand’ only; Products should be sold under the same brand internationally; and ‘single brand’ product-retailing would cover only products which are branded during manufacturing.

There has been a constant debate whether FDI in multi brand retail should become a part of government policy. Since 1991, with change being brought about by the policies in the government, Indian companies have woken up to the realities of international marketing and their associated challenges. Meanwhile, with changing global scenario, government better realise that no country could remain in isolation or as an island for long and hope to come out on top.

Allowing FDI in multi-brand retail will be a courageous decision of the government of India. Reason: The unorganised retail sector in India employs mass population which ultimately forms the bulk of the vote bank. The political implications may have refrained the government from taking a firm decision on FDI in retail, but the fact is India will have to, one day or the other, accept FDI in retail.

While the contribution of the organised Indian retail sector to the total employment has been 7 per cent as compared to 6 per cent, 11.7 per cent and 11 per cent in case of China, USA and UK respectively. With entry of foreign players, the industry will add competition which will force players to add value to their product and services. Besides, foreign players will also make the sector more organised to offer more employment.

Though the government has entrusted Indian Council for International Economic Research (ICIER) to conduct a comprehensive impact assessment of the participation of large foreign and domestic companies in the retail sector with reference to the small scale retailers and vendors, its recommendations are yet to become official.