A Right Step

Al­low­ing 51 per cent for­eign di­rect in­vest­ment in multi-brand re­tail per se is a step in the right di­rec­tion. How­ever, whether it will lead to ac­tual in­flow of FDI de­pends on many fac­tors, says Dr. Arpita Mukher­jee, pro­fes­sor, ICRIER.

Cargo Talk - - Guest Column -

The FDI in multi-brand re­tail de­pends on how easy or dif­fi­cult it is for for­eign re­tail­ers to ad­here to the con­di­tions as­so­ci­ated with the pol­icy, eco­nomic growth in In­dia, whether FEMA reg­u­la­tions will be mod­i­fied, how will In­dian states re­act to this pol­icy, etc.

Each ap­pli­ca­tion per­tain­ing to FDI will go through rig­or­ous scru­tiny of FIPB. I per­son­ally feel that the pol­icy, in its present form, is re­stric­tive and un­clear. For in­stance, if a for­eign re­tailer starts procur­ing from a SME and then the busi­ness of the SME grows, can the for­eign com­pany con­tinue to pro­cure from the SME? Also, one of the con­di­tions states that at least 50 per cent of the to­tal FDI which will be brought in, should be in back­end in­fra­struc­ture, which in­cludes lo­gis­tics and stor­age. How­ever, it ex­cludes ex­pen­di­ture on land cost and ren­tal. If a com­pany is set­ting up a ware­house or cold stor­age, how can it not buy or rent land?

In In­dia, the lo­gis­tics in­dus­try is frag­mented partly due to the struc­ture of the in­dus­try and partly due to pol­icy (for ex­am­ple, tax­a­tion pol­icy). There is a need for in­te­grated lo­gis­tics ser­vices in In­dia. If or­gan­ised re­tail grows, it will def­i­nitely pro­vide an im­pe­tus for the growth of the lo­gis­tics sec­tor since the de­mand for lo­gis­tics will in­crease. If de­mand in­creases, it will be prof­itable to in­vest in this sec­tor and the lo­gis­tics sec­tor will also re­ceive in­vest­ments. How­ever, for the sec­tor to con­sol­i­date and pro­vide in­te­gra­tive ser­vices, there is a need for re­forms like im­ple­men­ta­tion of GST.

As I men­tioned be­fore, one of the con­di­tions for en­ter­ing the multi-brand re­tail seg­ment is that at least 50 per cent of the to­tal FDI should be in back­end in­fra­struc­ture which in­cludes lo­gis­tics and stor­age. Thus, it is ex­pected that there will be some in­vest­ment in back­end. How­ever, the pol­icy is not clear whether the re­tail­ers will set up their own back­end or use the ser­vices of es­tab­lished lo­gis­tics play­ers in In­dia. In any case, the growth of or­gan­ised re­tail will ben­e­fit lo­gis­tics. If the in­flow of FDI speeds up the growth of or­gan­ised re­tail, it will def­i­nitely ben­e­fit the lo­gis­tics sec­tor.

I rec­om­mend that while there is a need to reg­u­late the re­tail sec­tor so that there is no anti-com­pet­i­tive prac­tices, con­sumers are pro­tected and zon­ing and other reg­u­la­tions are ad­hered to so that small re­tail­ers’ in­ter­est are not ad­versely af­fected. Also, there is no need to have un­due reg­u­la­tions like re­stric­tive sourc­ing con­di­tions or back­end in­vest­ment re­quire­ments. If for­eign re­tail­ers per­ceive a long-term in­ter­est in the In­dian mar­ket they will them­selves en­sure that the back­end is well devel­oped. This will au­to­mat­i­cally lead to the devel­op­ment of the lo­gis­tics sec­tor. Too many con­di­tions can act as a dis­in­cen­tive to in­vest­ment.

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