In Union Budget for 2016-17, finance minister, Arun Jaitley announced that “100% foreign direct investment [FDI] would be allowed through FIPB [foreign investment promotion board] route in marketing of food products produced and manufactured in India.”
While, the detailed policy guidelines in this regard are yet to be notified [currently, inter-ministerial consultations are in progress and the entire exercise leading to approval by Union Cabinet may take a few months], Jaitely’s announcement in the budget speech is a clear pointer to Modi – dispensation permitting FDI in multi-brand food retail.
In 2012, during a heated debate in Parliament, BJP members had vociferously opposed the proposal of then UPA government to allow FDI in multi-brand retail citing threat to millions of small retailers [so called mom and pop stores] and resultant loss of jobs. They also apprehended debilitating effect on Indian farmers as MNCs won’t pay a good price for whatever they buy from them and could source their requirement from imports.
Despite opposition from BJP [and a couple of other parties], UPA – dispensation got the proposal approved in both the houses. The government notified 51% FDI in multi-brand retail [MBR] subject to riders such as 30% sourcing from small enterprises, minimum investment of US$ 100 million, prior approval by states etc.
BJP’s opposition to FDI in MBR continued even thereafter and was a major plank in its manifesto for 2014 general elections. Therefore, one would have expected that it would junk the above decision but it did not. Instead, Modi – government has quietly continued with the policy. This juxtaposed with its present proposal to allow FDI in MBR food [a major slice of retail market in India] shows that its heart is very much in FDI in MBR.
Following the budget announcement, food processing minister, Harsimrat Kaur has gone whole hog exhorting its virtues that this will help in reducing wastage of agriculture produce [about Rs 100,000 crores annually] by boosting investment in storage/refrigeration, handling and transportation facilities, fetch farmers better price and will help in doubling their income by 2022 [as promised by prime minister, N Modi].
In this backdrop, it is abundantly clear that the BJP’s opposition to FDI in MBR initially in 2012 [during parliament debate] and then in the run up to elections in 2013/2014 was just an eyewash; that it was just an election ploy to placate its core constituency viz., retailers [or kirana shops as it is known in common parlance].
There is no point in being merely wedded to a given idea unless the government actually demonstrates this in action by acting ‘wholeheartedly’ and implementing all measures to get optimum results. It is dangerous to sail in two boats at the same time viz., go for FDI in MBR and yet maintain a contrary policy stance. Yet, it is getting reflected in all its policy decisions.
When, Modi – dispensation decided to continue with 51% FDI in MBR, it ought to have removed the conditions viz., 30% sourcing from small enterprises, minimum investment of US$ 100 million, prior approval by states etc which has made the policy a virtual non-starter. During the last 4 years, except Tesco which has a joint venture with Tata’s Trent, there has not been any FDI in MBR.
As regards 100% FDI in MBR food, food minister wants at least 25% of FDI inflows to go for creating infrastructure at the farm level such as mechanised farming, better irrigation facilities etc. Further, the foreign entity will only deal in food products produced and manufactured in India using agri-produce sourced from Indian farmers. Besides, approvals will be granted on a case-by-case basis. These riders will nip such a good initiative in the bud.
As in case of off-line MBR, Modi – government may well have intended to bring FDI in e-commerce as well. But, here also, it has completely messed up. Under guidelines for FDI in e-commerce recently notified by the Department of Industrial Policy and Promotion (DIPP), it has allowed 100 per cent FDI through automatic route in “marketplace” format but not in “inventory-based” model of e-commerce.
But, the manner in which it defines the mentioned categories, the line of demarcation between the two gets completely obliterated. Thus, any one operating an “inventory-based” model [e-commerce counterpart of MBR in off-line segment] will easily pass muster under “marketplace” thereby becoming eligible for 100% FDI. For details, pl read:-
No wonder then, Indian corporate operating in MBR have been left fuming as e-commerce companies have managed to get 100% FDI in this segment [albeit in a ‘disingenuous’ manner] even as they have been denied this opportunity. The government may be wanting to soothe their frayed nerves by allowing 100% FDI in MBR food but that too may not come un-stuck.
Ironically, even the e-commerce players have not got a free ride. Those operating under so called “market place” model [effectively in MBR] are subject to certain riders. Thus, an e-commerce firm cannot sell more than 25 per cent of its total sales from one vendor or its group companies. It will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.
At the end of the day, government has ended up putting every stakeholder in an uncomfortable zone; brick and mortar companies who feel discriminated vis-a-vis e-commerce players; e-commerce companies who are unhappy with riders and small un-organized retailers who are being fed on a psychosis of getting a short shrift at hands of MNCs.
The current state of policy flip-flop must end. That can happen only when government does not let its stance be influenced by different constituencies which are bound to work at cross-purpose. Instead, it should go by what lies in over arching national interest. And, that is best served by allowing 100% FDI in retail irrespective of whether it comes online or offline; single brand or multi-brand.
While, Modi is doing a great job delivering on good governance and improving the ease of doing business, timely action on policy reforms such as FDI in retail are equally crucial. He should get cracking on this by putting in place a “uniform” and “stable” policy framework.