In poll season retail FDI is a political hot potato!

Is the recent war of words between the Centre and the two newly elected governments of Delhi and Rajasthan over their decision to scrap permission to Foreign Direct Investment (FDI) in multi-brand retail in their states for real?

Or, is it another attempt to mask the bitter truth: multi-brand retail in FDI is a political liability and with elections around the corner no politician is keen to be seen to be actively promoting it?

The anti-FDI retail sentiment espoused both by newbie Aam Aadmi Party (AAP) and main opposition BJP has yielded them immediate political dividend, hence even Congress, which earlier made some cosmetic efforts to usher in a new policy perspective, is not going the whole hog to fast-track retail multi-brand FDI in the country.

Is that why the Centre has put a very flimsy argument to attack BJP-led Rajasthan government and the AAP-led Delhi government?

While reform votaries may be right in voicing concern over the potential fallout of policy ambivalence globally, the Centre’s arguments in its defence are at best weak. This is how:

1. The Commerce Minister has primarily contended that "states cannot retract unilaterally on such commitments."

The multi-brand FDI policy notified (Press Note No 5 2012) by the Union government’s Commerce and Industry Ministry on September 20, 2012, does not bar any unilateral action by any state government. On the contrary it seeks to give freedom to states and union territories to decide on the issue. At the time of the announcement of the policy only ten states and union territories gave their ascent.


2. Anand Sharma has further argued that FDI policy fell clearly within the “remit of the Central government.”

The Commerce Ministry Press Note allowing FDI in multi-brand introduced a new paragraph to outline the new conditions. The policy under sub clause (VII) of this new paragraph clearly states “the revised policy is an enabling policy only and the state government/union territories would be free to take their own decisions in regard to implementation of the policy. Therefore, retail sales outlets may be set up in those states/union territories which agreed, or agree in future, to allow FDI in multi-brand retail under this policy.”

3. The September 20, 2012 multi-brand policy document did identify ten states and union territories that had agreed to allow FDI in their respective states. The list included Delhi and Rajasthan, both under Congress administration then.

However, the Commerce Ministry press note in continuation of sub-clause (VII) said, “… the establishment of the retail sales outlets will be in compliance of applicable state/union territory laws/ regulations, such as the Shops and Establishments Act etc…”

Also, the Centre cannot fault the states for changing their stand on the issue. Both BJP and AAP had listed their opposition to the multi-brand FDI in their manifestos and campaigned aggressively on the issue during December polls last year. Therefore, the scrapping decision does not come either as a surprise or as a sudden change of heart.

Given the political sensitively of the issue, the political parties have used the retail FDI issue to garner support. In the absence of a clear cut central policy on the FDI retail issue, the country has witnessed a flip flop from politicians of all hues. Remember Mayawati as Uttar Pradesh Chief Minister in August 2007 sent packing Reliance Fresh out of the state in view of her opposition to organized retail in the country.

But BSP along with SP abstained from voting when the multi-brand retail FDI policy was put to vote on the floor of the House in December 2012 to pave the way for UPA to win the vote.

Apart from the Left, SP and BSP have openly opposed the move to allow 51 per cent FDI in multi-brand retail in the country. The retail FDI issue did not figure prominently in its poll campaign late last year.

It is, therefore, not surprising that global retail chains have been quite lukewarm to India. In more than a year of the revised multi-brand FDI policy, Tesco is the only chain to have shown interest.

Tesco plans to pick up a 50 per cent stake in Trent Hypermarket Ltd, a retail arm of the Tata group, and enter the multi-brand retailing arena. The British retailer plans to invest $100 million (around Rs. 620 crore) to set up retail stores in the country.

Retail major Wal-Mart, which exited a six-year joint venture with Bharti late last year, has not made any firm commitment on plans ahead for India. Both foreign and domestic retail firms, including Wal-Mart, Tesco, Carrefour, Bharti, Aditya Birla Group, Tatas, Reliance and Pantaloon, want government to change FDI norms.