From unfriendly to ambiguous

The time for FDI in multi-brand retail has clearly passed: Multinationals have either moved on to other business models or other geographies

It has passed,” then Walmart Asia Chief Executive Scott Price had famously said in October 2013 on the sidelines of a conference in Bali about the relevance of India’s foreign direct investment (FDI) policy in multi-brand retail. Within days, Walmart and Bharti group terminated their partnership for retail business in the country, putting an end to the American major’s dream of tapping the buying power of a rising middle class in India.
 
Price’s remark had come against the backdrop of an investor-unfriendly policy. In 2012, the United Progressive Alliance government had allowed 51 per cent FDI in multi-brand retail, setting the tone for big businesses such as Walmart and Tesco to open stores in tie-up with Indian companies. But the policy threw up so many conditions —local sourcing, state-wise decision-making and dictating investment modalities — that multinationals, which had waited for years to replicate their international brick and mortar formats in India, got tired of it all.

 
Four years after the Walmart executive’s telling comments, it’s time to repeat what he had said — it has passed — as the debate on FDI in multi-brand retail is back on the table. The latest to back FDI in multi-brand retail is the recently appointed NITI Aayog vice-chairman, Rajiv Kumar. Back in 2008, Kumar had recommended opening up the sector, though cautiously, when he was the director and chief executive of think tank Indian Council for Research on International Economic Relations (Icrier).
 

But clearly, the time for FDI in multi-brand retail has passed because multinationals have either moved on to other business models or other geographies. The world’s largest chain, Wal-mart, after parting with Bharti, has been building its cash and carry business, which caters to retailers, offices and institutions, but not to individual consumers. There’s no FDI restriction on cash and carry as it does not clash with neighbourhood stores. The Bentonville-based group is unlikely to shift to a new model unless the terms are lucrative. UK’s Tesco, in partnership with the Tatas, has token presence in two states that permitted multi-brand FDI at that point. Tesco is the only foreign player operating multi-brand retail in India. French major Carrefour experimented with cash and carry while waiting for multi-brand rules to ease, but finally left the country in 2014.

 
Technology, too, is changing the scenario fast. Online shopping is gaining traction like never before — recent festival sales showed a 50 per cent jump from the same time last year. In less than a week, Indians had shopped for more than $1.5 billion online, and e-commerce has a market share of just 12 per cent of the total retail pie. That suggests sky is the limit for online growth in a retail market that was estimated at over $550 billion in 2016. It makes sense for businesses to bet more on asset-light online than on creating expensive physical infrastructure. A Walmart would now like to invest all in competing with the likes of Amazon rather than getting its act together on more complex physical stores.

 
Also, the government is coming up with new formats such as food-only retail and food-plus retail in addition to the already multiple categories — single-brand, multi-brand, cash and carry — that exist in India. With falling investor appetite, businesses will go to the segment that’s the easiest to operate and where returns will come easily. 
 
The excitement of 10 years ago about the possibility of shopping at a Walmart or a Tesco in India is long over. Opening the FDI talk again looks meaningless unless the government is sure of its mind. With less than two years to go for general elections, the Narendra Modi government is unlikely to risk turning its vote bank (traders) away, especially as they have already been hurt by demonetisation and the goods and services tax in quick succession.

 
At the time the Icrier report came out in 2008, the government concern over allowing FDI in multi-brand retail was that international giants would take away thousands of jobs at mom and pop stores. The Icrier report, too, mentioned that small retailers and vendors would be hit hard, though they would find ways to survive. Almost 10 years later, Kumar is talking of opening up FDI in multi-brand as a way to create jobs, at a time when the National Democratic Alliance (NDA) government is under attack for failing to deliver on the employment front. Who knows? He’s possibly right because expansion of retail through FDI could mean more jobs. But the government may find it hard to bite the bullet at a politically sensitive time. Especially so as the NDA government has been ambiguous on the multi-brand FDI policy without any change on paper.