The Government must end the piecemeal approach on attracting FDI in the country’s various growth sectors. It must allow 100 per cent FDI in multi-brand retail
In the Union Budget of 2016-17, Union Minister for Finance Arun Jaitley announced that “100 per cent foreign direct investment would be allowed through FIPB (Foreign Investment Promotion Board) route in marketing of food products produced and manufactured in India”. This paved the way for FDI in multi-brand retail in food, which accounts for a major slice of MBR business in India.
This is a U-turn in the Bharatiya Janata Party’s stance of 2012, when on the floor of Parliament, it had opposed the proposal of the then UPA dispensation to allow 51 per cent FDI in MBR. The Narendra Modi Government has also retained the UPA’s policy package, which is in contravention of its stated approach and also reiterated in its election manifesto of 2014.
At another level, the guidelines recently issued by the Department of Industrial Policy and Promotion, Ministry of Commerce, allow 100 per cent FDI in the so-called market place format of e-commerce, through automatic route — though it is not permitted in the ‘inventory-based’ model.
Under a marketplace model, an e-commerce entity provides an information technology platform — on a digital or electronic network — to act as a facilitator between buyer and seller. It may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other service.
Such entities will not exercise ownership over the inventory of goods. An ownership of goods and services will render their business into inventory based model wherein the e-commerce company sells goods directly to consumers (B2C), while FDI is not be allowed.
Together with 51 per cent FDI in off-line MBR and now 100 per cent FDI in MBR food (announced in the current year’s Budget], Prime Minister Modi appears to be on a roller coaster ride with regard to FDI flows in retail. Yet, when it comes to translation of the policy intent into reality, the moves are half-hearted and are far from exploiting the full potential.
Consider 51 per cent FDI in off-line MBR. Because of stringent riders (30 per cent sourcing from small enterprises, minimum investment of US$ 100 million, prior approval by the States etc), the policy is as equivalent as saying ‘no’ to foreign investors. In the last four years, except for Tesco, which has a joint venture with Tata’s Trent, there has not been any FDI in this segment. The present Government has not removed the conditions. that have stifled growth.
In e-commerce MBR, having allowed 100 per cent FDI through the back door, the Government has put onerous conditions on entities operating the ‘market place’. Thus, riders like selling no more than 25 per cent of total sales from one vendor and not influencing the sale price, directly or indirectly, have led to serious compliance issues.
With respect to FDI in food, Food Processing Minister, Harsimrat Kaur Badal, wants that at least 25 per cent of foreign inflows should go for creating infrastructure at the farm level: Such as mechanised farming, irrigation facilities etc. Foreign entity will only deal in products made in India using agri-produce sourced from Indian farmers, besides case-specific approval. As such, an exclusive retail store dealing only in food products will not be economically viable.
The above arrangements hardly add up to a policy environment conducive to attracting FDI. Worse still, these give a lot of discretion to the bureaucrats in decision making [they will decide who will be permitted and where] which is contrary to Modi’s philosophy of a policy driven state and is not good for ease of doing business.
The current state of policy flip-flop must end. That can happen only when the Government does not allow policies to be held hostage to its political objectives. It should go by what lies in the overarching national interest. Playing from a straight bat, it should allow 100 per cent FDI in retail, irrespective of whether it comes online or offline; multi-brand or single brand — and without any riders.
http://www.dailypioneer.com/columnists/oped/half-measures-will-not-yield-results.html