The FDI tangle

E-commerce and multi-brand retail present major challenges to the govt

This government’s e-commerce policy seems to be going through some twists and turns, obfuscating a clear policy thrust. The latest flip-flop pertains to the government’s proposed policy framework relating to foreign direct investment (FDI). Allowing 49 per cent FDI in e-commerce companies will effectively tra?n?s?late into foreign players getting into the Indian retail space that has been the preserve of local mom & pop shops. Only after the Swadeshi Jagran Manch and RSS outfits mounted pressure, industry secretary Ramesh Abhishek furnished a clarification that since FDI was not effectively allowed in multi-brand retail, the government co?u?ld not allow it in e-commerce ventures selling goods (even if) produced in India. In the process, Abhishek let the cat among the pigeons when he spoke of the government’s worst-kept secret – differences within on allowing foreign investment in the retail space.

Liberal strategists with global exposure have pushed for an FDI policy that would allow every sector to be opened up without riders. Retail space is one of them. In this, proponents of the swadeshi model opposed them. While the differences remained unresolved, there was hardly any talk of FDI in any sector, leave alone the multi-brand retailing business in the first two years of the current NDA government. After that came the huge FDI liberalisation campaign in over a dozen sectors that involved lifting caps, new terms of engagement and opening the door wider. From markets, real estate, telecommunications, aviation, banking and defence to internal security, foreign investments were encouraged with minimal restrictions. Major FDI inflows were seen in pharmaceutical companies with most Indian outfits today owned by transnational majors.

The Confederation of All India Traders, with the majority of its members being staunch BJP supporters, had red-flagged the move to liberalise FDI in multi-brand retail. Domestic retail traders along with the proponents of swadeshi seem to the call shots on FDI in multi-brand retail and e-commerce firms where business-to-co?n?s?umer operations happen with a huge inv?e?ntory of products and services. A large section in the NDA establishment and the Sangh Parivar seems to have rejected FDI in both inter-connected areas of business. On the other hand, 100 per cent FDI in si?n?gle brand retail has hardly enthused foreign investors if a mere $1 billion in?flow we?re reported in one decade. There is sca?r?cely any clarity as to whose baby e-co?m?m?e?rce is. The department of industrial promotion & policy and the food ministry se?em to have been in a slugfest claiming ow?n?ership of e-commerce and retail trade. What the government consciously did in other sectors was to link FDI inflows to setti?ng up production bases under the ‘make in India’ campaign. In fact, this policy has yielded some results in the last 4 years in several sectors. But, e-commerce and mul?ti-brand retail seem to be a different ballgame. Foreign companies have had a to?u?gh time in ensuring 30 per cent local content in domestic retailing even at wholesale level or setting up their network of retail outlets.

Politically, the ruling NDA and prime minister Narendra Modi will find it difficult to explain to its core vote bank the rationale for liberalising FDI. With general elections due next year, Modi may do well not to antagonise the BJP’s core constituency of traders who took hard knocks following the demonetisation of high value currency notes in November 2016. Sinking differences within the ruling alliance could be the starting point to come up with a saleable e-commerce and multi-brand retail policy. The entire retail trade – it is now administered by half a dozen departments – should be brought under a single ministry soon. Also, an independent third party analysis can be commissioned to understand the impact of a liberalised FDI regime in the retail space. If the mood of the nation is against such a move, the prime minister should acknowledge that.