The announcement of 100 per cent foreign direct investment in single-brand retail from the current 51 per cent has been largely welcomed: in no way does it affect the business of big Indian retailers and the ubiquitous kirana shopkeepers. The big stores can’t keep just one brand which single-brand retail assumes; therefore those who are likely to be attracted are top-end luxury manufacturers like Prada, Gucci, Swarovski, Omega and the like, who have been entering the Indian market with increasing regularity. One report claims that investments worth `900 crores have already come in through single-brand retail.
This move has also fuelled hopes among those in favour of allowing FDI in multi-brand retail as well — that a decision on this hugely controversial issue might follow in the not too distant future, perhaps even after the Assembly elections are over. There is also a rider to the single-brand retail move — that foreign retailers should source at least 30 per cent from Indian small and medium enterprises. It may be recalled when the government had in November 2011 approved FDI in multi-brand retail it had said 30 per cent of the total value of products sold should be from small-scale industries globally, which led to a hue and cry. Commerce minister Anand Sharma was then forced to clarify that the 30 per cent sourcing should be from domestic SMEs.
This 30 per cent sourcing from Indian SMEs, however, looks more like a political gimmick, designed to assuage the feelings of those opposed to FDI in retail, and is unlikely to stand scrutiny if foreign retailers challenge it. The real issue is that such a clause cannot be enforced under our World Trade Organisation and various Free Trade Agreement obligations. Under the FTAs, the government has to provide a foreign investor the same treatment that it gives an Indian manufacturer. Thus, since there is no such procurement clause binding on an Indian retailer, it cannot be imposed on foreign retailers. The commerce minister and his officials are well aware of this, so the fact that they are going ahead to make it a precondition is strange. Some people see a political ruse behind this. It is said that when foreign carmakers entered India some years ago, there was a proviso that there would be indigenisation within five years. But it was a matter of time before these requirements about localisation, export obligations, etc were watered down, and finally done away with completely. So will these provisos regarding 100 per cent FDI in single brand retail — and 51 per cent FDI in multi-brand, if and when that happens — go the same way? Is the government playing on the gullibility of the people?