FDI in multi-brand retail

What is the issue?

There is revival in talks among the government circles for FDI in multi-brand retail.
However, time is said to have passed for a policy decision on this front.

What was the earlier reform?

In 2013, India rolled out a renewed foreign direct investment (FDI) policy in multi-brand retail.
But the policy threw up so many conditions such as local sourcing, state-wise decision-making, investment modalities, etc.
Consequently, Walmart and Bharti group terminated their seven-year-old partnership for retail business in the country.
The requirement of sourcing 30% of the goods from domestic companies was one of the reasons.
Also, Wal-Mart Stores was to find a local partner to own 49% of business under the FDI regulations to set up multi-brand outlets.
The break up put an end to the American major Wal-Mart’s dream of tapping the buying power of a rising middle class in India.

Why is the time unripe now?

Four years from then, the debate on FDI in multi-brand retail is back on the policy table.
But experts are of the opinion that the time for FDI in multi-brand retail has passed.
This is because, with the earlier unfriendly investor policy, the multinationals have either moved on to other business models or other geographies.
Businesses are unlikely to shift to a new model unless the terms are lucrative.
Besides, fast changing scenario in terms of technology is another reason.
Ex: Online shopping is gaining foot and has a huge potential in the coming years.
Businesses thus consider investing in this a better option than other expensive physical infrastructure for multi-brand retail.
Businesses prefer the segments that is the easiest to operate and where returns are promising.

What lies ahead?

Opening the FDI talk at this juncture looks less significant.
However, if the government views it for employment generation, then the above concerns must be addressed before any policy formulations.

Source: Business Standar