It’s a decision with far-reaching ramifications. The Union Cabinet has approved 100 per cent foreign direct investment (FDI) through the automatic route in single-brand retail, up from the current requirement of 49 per cent. The Cabinet has also eased the requirement that the retailer source 30 per cent of his goods from the domestic market.
The timing is significant. With just days to go for the World Economic Forum at Davos, the Narendra Modi government wants to tell the world that economic reforms are on track in India. India is a fast-growing $600 billion retail market which contributes 10 per cent to the country’s GDP. To attract foreign players to boost growth makes sense. Ikea and Marks & Spencer are already here. Apple and others are waiting in the wings. Expectedly too, the Opposition has called out the volte- face of the BJP-led (NDA) government. In 2012 when the Congress-led (UPA) government notified 49 per cent FDI in retail, Modi dubbed it a ‘sell-out’ to foreign investors.
We are heading towards an ‘open’ economy in Indian style. Governments and parties typically take the one-step-at-a-time route. They know drastic measures can end in disaster. FDI in pharma was 100 per cent with government approval till June 2016. After that 74 per cent was allowed through the automatic route. After March last year, FDI in news media was upped from 24 per cent to 49 per cent.
The battle lines are well drawn out. FDI in retail will bring a slew of new brands and lifestyles in a country raring to go. It will multiply retail outlets, spur jobs and push growth. For the consumer, more competition means cheaper options. But organised retail today is just 5-6 per cent of the market and most of the trade is owned and handled by a spectrum of mom-pop shops and Indian-owned brands. Against a foreign onslaught, hundreds of these outlets will shut. Local trade associations have already put the government on notice. It will be interesting to see how the Modi sarkar handles the looming agitation.