Foreign Direct Investment in Indian Retail Sector

Anything critical that has to be done must and will be done with enough thought and precaution. But, whatever be the case, one is definitely going to face new challenges regarding the decision that’s being taken. The decision can be anything ranging from personal to the highest order in our Nation. So is the case with the FDI, or for that matter any policy being implemented by the government.

To put out a basic fact, the biggest issue in our Nation does not hit the front page of the news paper or the news headline whereas it is simply the news that’s in the front page of a news paper and running in the headline that becomes the issue. First and foremost reason for this is the lack of awareness that people have. Analyzing the reactions from the public it is well understood that the resolution taken for any problem is to terminate the problem rather than finding a prompt solution which would lead to the betterment of the ones involved.

As per the government’s decision ‘Multi-brand’ retailers are allowed 51% FDI. 30% of procurement of their goods must come from the Indian backend. The problem or the issue raised is basically that the small retailers would suffer. True, but only if the bill is passed without any consideration for these retailers. Why then is the government so keen to implement this policy? Is it just a ‘rock’, ‘paper’, ‘scissors’, decision taken by a panel of members and the advisory committee.

Consumers only want their goods at affordable prices and they want the goods to have ‘good quality’, is this not going to increase the competition also within the domestic market to maintain, rather improve the quality of the goods sold. Of course the bill might not entirely be within the best interests of the small retailers but it seems to be in the best interests of the nation. Obviously a resolution can be found for this one problem. The policy should just have provisions ensuring the interests of these retailers. Nothing is impossible, given the resources. It is the Indian government that’s creating the bill and it’s obviously not impossible to draft it in our favor and suite our needs.

The FDI in multi-brand retailing is just going to be a new path of exploration, as was the IT field which took India to new levels. The FDI would curb inflation, and would also add a whole new sea of opportunities for Indians. With the retailers having to buy 30% of their procurement from the domestic market, the farmers would definitely benefit. This could possibly end the middle-man era that has eroded and misplaced the wealth from the place it’s supposed to be in. The increase in competition means better quality for the consumers. With FDI also comes technology and innovation transfer which would further aid our nation in development. For example, better storage facilities for goods would put out a huge margin of loss which has been resulting from improper storage.

The only and most important thing to be serious about is the invasion of Chinese products on the Indian market. Discussions and debates mostly surround only the impact on the small retailers and not the the long term impact this decision is going to make. ‘FDI worked in China, then why not in India?’ is a popular question. Well, the Chinese, unlike Indians, are one of the largest exporters in the world and earn their income mostly on exports. For a matter of fact, 70% of Walmart’s goods come from China, which is why we need to be careful of the ‘Chinese invasion’. If Walmart was an individual investor, it would stand 8^th largest investor in China just ahead of Russia. This is how big the impact is going to be.

Everything good comes with a price and we have the responsibility to regulate policies well which would prevent unnecessary trouble later. A regulatory body for this particular sector, if set up, would definitely add to the benefits of the host nation as this body would be committed to that particular sector. Policies are the back bone to any standing decision and to have it framed and implemented for the betterment of the people is the most vital part. India is very well known for bringing up fantastic plans, but ends up favoring the wrong side due to lack of commitment into the policy. This is one reason that every issue in our nation has to be hyped.

To those who say ‘They don’t allow us, then why allow them?’, there’s just one thing to say. People prefer the better, and if the Indian retailer is better than its foreign counterpart, the Indian is going to be the ideal choice. FDI will bring brighter dreams in the future for our nation. The final verdict is that implementing FDI is one of the best choices made by the government; the difference is only going to be a matter of how it is going to be implemented and what steps are taken to have it play for us. It is pre-mature to predict how this would end up, as one can only wait and watch into whose hands the policy plays in the long run.


The writer of this article, Anshu Katiyar is a PGP student of Indian Institute of Management, Raipur. He has done his B.Tech in Information Technology from Dr. M.G.R. University, Chennai and can be reached at pgp11008.anshu@iimraipur.ac.in

National Manufacturing Policy

Last week the cabinet came out with the National Manufacturing Policy. This was a much awaited move that required clearance from the government and finally it has come to reality. India is a country that was recognized for its services throughout the 1990s but then the manufacturing industry could also not be ignored. Considering the perception of growth of the manufacturing industry, a general public view could have been that the share of the manufacturing industry in India’s GDP was also increasing year on year but the fact is that year after year the manufacturing industry was recording an almost constant share of about 15-16%.

Some of the major objectives and highlights of the policy are

1) To generate 100 million jobs within the next 10 years- Though this idea is very ambitious. If it comes as planned, it should increase the GDP share of manufacturing industry manifold.

2) To increase the contribution of manufacturing industry in the GDP to up to 25 % by 2022- This is quite an achievable target considering the seriousness with which the government has now come out in support of the manufacturing industry.

3) Increase competitiveness in the global markets by appropriate policy support

National Investment and Manufacturing Zones

 This idea seems to be taken from that of Special Economic Zones. Under NIMZ’s a land of about 5000 hectares shall be allocated to each zone. There will be one CEO of the zone who will be a high rank government official to take care of all the major decision in the zone. Various benefits will be given to the operators in these zones such as relief from capital gain tax. If the amount used for the purchase of new equipment is derived from the consideration received from the sale of old plant and equipment there shall be a relief in capital gain tax. This shall increase and motivate the units to bring back the money from the sale consideration back to business. The work of land acquisition shall lie with the government and it will be a challenge to bring in land excess of 5000 hectares for the use of NIMZ’s

Innovative IT methods and clearance system

In the past the manufacturing industry has experienced many roadblocks despite the government bringing in many IT enabled tools for faster processing. The government officials have many times been found reluctant to follow new methods. Efforts will now be on to bring in a single window for all clearances to enable faster processing of matters related to the clearances from the government. This shall be done by integrating as much IT systems within the system as possible. One of the major and innovative measures in the policy is that all government clearances will now have a timeline and if the clearances are not given within the stipulated timeline the clearance will be deemed to have been given.

In most of the case where matters will be held up due to clearances, due importance shall be given to the case and the government shall support the manufacturer to get the clearance done.

Go Green

Those industries willing to go green or those that are willing to reduce their carbon footprints shall be incentivized in manners more than one. In fact the policy also says about the idea of buying out Intellectual Property rights from the innovators. By this method, if some industry wants to go green and is withheld due to some technology getting patented then it can also enjoy the freedom of using that idea. The idea/invention/innovation or any other IP shall be shared by the government after the buyer duly gives a royalty for the idea. But in this manner after paying a certain amount at least the IP right will not be a hindrance for anyone to go ahead.

Development of new ITI’s and polytechnics.

The policy has also focused on the grass root level from where the talent for working in a manufacturing industry comes. The policy aims at increasing the number of ITI’s and polytechnics in the country. This shall focus even on bringing in specialized courses besides new colleges. The new courses shall be highly industry specific.

Sector Specific policy

Though a policy as generic as this doesn’t have many sector based inclination but in this policy it is proposed to focus on such sectors that can bring in more money. This shall be a method that will fulfill the motive on 25% share in GDP by 2022.  Such measures are always good wherein the industry hits and exploits such sectors which are new and have lots of potential. The basic indicators of success such as share, GDP, profit, sales margin can all be increased for the whole industry by focusing on these few sectors.

As we all understand that more important than making a policy is its implementation and for the very reason the policy makers have provided the tool of manufacturing policy review mechanism. Secretary, Department of Industrial Policy and Promotion will be reviewing the policy on regular basis.

We hope that all these measures help India achieve its targets and come out victorious through the execution of this policy.

The writer of this article, Abhijeet Srivastava is a PGP student of Indian Institute of Management, Raipur. Abhijeet has worked in Punj Lloyd for 36 months before joining IIM Raipur.