Free Up Organised Retail, Shed Riders
Make in India needs an efficient retail sector
The government reportedly wants to free up foreign direct investment (FDI) in retail, but only for domestically manufactured goods. That shows confused thinking, not reform to enrich the economy and empower consumers. The country needs inflow of foreign capital. Real reform requires lifting curbs in FDI on all types of retail, both online and physical. It will boost investment, both in real estate and in manufacturing, bring in business expertise, and modernise the country’s retail sector. The notion that allowing 100% FDI — only in e-commerce and brickand-mortar companies that make and sell stuff locally — will boost domestic manufacturing is misplaced.
What will or will not be produced in India should be left to tariffs and industrial policy, apart from inherent competitiveness of local production relative to production abroad. The need is to freely allow foreign investment in retail, so as to offer manufacturers a ready distribution platform. It would also end complaints by organised physical retailers over unfair competition from online retail that receives oodles of cash from venture funds that it converts into discounts. General mistrust of organised retail is unwarranted as the benefits outweigh harm caused to small traders. Organised retail chains do away with tiers of stocking and distribution between the producer and consumer. This, in turn, lowers the cost for consumers, expands the market and boosts tax collections. By derisking distribution, domestic manufacturing can draw more investment, including investment by mid-size foreign companies that can make products, but are too tiny to invest or build their own distribution network.
Whether retailers should hold inventory or function as a marketplace should be left to the logic of commercial efficiency, rather than diktat, as at present. For a variety of goods, the marketplace model is just fine and would be chosen by the industry of its own accord. When selling directly to the customer by the online retailer is desirable, as it might be in the case of some specialist goods, why should policy come in the way and obstruct commerce?