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Rediff.com  » Business » 'Retail FDI a must, but not the biggest reform'

'Retail FDI a must, but not the biggest reform'

August 27, 2012 15:49 IST

retailMonths after the Cabinet decision to open up multi-brand retail for foreign direct investment was put on hold, many industry analysts and experts seem to have hardened their stand that FDI in the sector is not as big a reform step as the government is making it appear.

Compared with the urgency of other economic reform measures that were on the government's 'to-do' list, retail FDI might not deserve so much attention in isolation, they said.

Even as the Centre is working overtime to roll out FDI in retail while the real decision might rest with the states, Arvind Singhal, chairman, Technopak Advisors, often referred to as the poster boy of the Indian retail sector, said the so-called big-ticket measure was "not the most important thing"for the sector.

Retail FDI would bring money into the country, but foreign investors may not be in a mad rush to come to India, he said.

"There's no reason that FDI in multi-brand retail should not be allowed in India, but it is not a big reform measure and not the most important thing for the country."

Issues like goods and services tax, oil deregulation and foreign investment in civil aviation and insurance were reform steps the government should focus on as these would help consumers and lift the economy, he said.

Soon after the decision to allow FDI in retail was put on hold due to political opposition last year, Singhal had told this newspaper in an interview: "India missed out on several opportunities in the last several years, and permitting foreign investment in multi-brand retail was a chance to restore the country's image."

"Having witnessed months of inaction on the policy front, others, too, have a mixed view on retail FDI being projected as a lead reform.

FDI in retail will be seen as a reform measure only if it is managed and executed well, said Pinaki Ranjan Mishra, Ernst and Young partner and national leader, retail and consumer products practice.

"While big retailers may offer lower prices than kirana stores and farmers may get better remuneration because of modern retail, somebody should enable these things and remove the roadblocks," he said.

Farmers' organisation, Bharat Krishak Samaj, is fine with the idea of FDI in retail as long as the condition of 75 per cent direct sourcing from farmers is accepted by the government.

It goes one step further to say all big-league retailers must adhere with the 75 per cent sourcing policy.

However, according to Ajay Jakhar, chairman of Bharat Krishak Samaj: "FDI is not a reform, it is a mere investment policy notification." Agriculture reforms are what the country needs more, he said.

Economist Mohan Guruswamy, who has been opposed to retail FDI, said recently at a conference: "I have a problem with retail FDI being talked about as a reform measure. It is going to be deformative."

Although business chambers such as the Confederation of Indian Industry and the Federation of Indian Chambers of Commerce and  Industry are supporting FDI in retail, their top representatives are of the view that it is one of the many reform measures that the government must look at, rather than focusing on it in isolation.

Whether or not FDI in multi-brand retail could be termed as a reform step would depend on what benefits it would bring to farmers and consumers, according to Nirupama Soundarajan, additional director and team lead (financial sector and corporate law division) at Ficci.

She added measures like GST, FDI in civil aviation, insurance and retail -- all had their rightful place. But, at a time when the West was not doing well and India was a big opportunity market, "We should utilise this hunger and allow them to come to our country on our own terms," Soundarajan said.

There are a lot more reform steps that the government has to take, including GST, FDI in insurance and aviation, said CII Director General Chandrajit Banerjee.

But retail FDI was very important, too, he added, as it would touch many aspects of business such as the supply side and food chain.

Nivedita Mookerji in New Delhi
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