FDI realities: A decade on, policy for multi-brand retail remains on paper

Ten years after FDI in multi-brand retail was allowed, it remains largely inactive. Meanwhile, e-commerce giants like Amazon and Flipkart continue to reshape India's rapidly evolving retail market

“Out of the question.” That was Commerce and Industry Minister Piyush Goyal’s reply to Business Standard in an interview a few days ago when asked about the scope for foreign direct investment (FDI) liberalisation in multi-brand retail. This remark coincides with India celebrating 10 years of its signature scheme: Make in India.

It’s a different matter that FDI in multi-brand retail is already allowed, but has remained only on paper the last 10 years. The Congress-led United Progressive Alliance government announced a multi-brand retail policy in 2012, allowing up to 51 per cent FDI. However, while international retail companies were still strategising their India entry, the Bharatiya Janata Party-led National Democratic Alliance government came to power in 2014, altering the retail landscape for years to come. Since then, the multi-brand retail policy has been kept in abeyance.

This government’s opposition to FDI in multi-brand retail is no secret, nor is the reason behind it. But, are the mom-and-pop stores and local traders, who are considered a critical vote bank for the BJP, a happy lot without FDI in multi-brand being activated? Or, have the neighbourhood corner stores actually gained from the government’s stand on FDI in multi-brand retail?

From the look of it, domestic traders are an angry lot. Earlier this week, traders got together to discuss a white paper on the impact e-commerce giants such as Flipkart (owned by Walmart) and Amazon have had on them. The white paper, put together by the Confederation of All India Traders (CAIT), was based on a report by the Competition Commission of India (CCI) regarding violations of e-commerce FDI norms by Amazon and Flipkart. The CCI had started investigating the case way back in 2019, when Delhi Vyapar Mahasangh, an affiliate of the CAIT, filed a petition with the antitrust body, alleging that e-commerce majors favoured some sellers over others. In the same case, the CCI has now sought financial details from the e-commerce companies to determine a penalty after a court hearing.

This is not the only instance when Indian retail has confronted foreign majors in the e-commerce space. The most consistent complaint against the global giants revolves around the discounts they offer because of their deep pockets.  To be sure, 100 per cent FDI is allowed in online marketplace when players like Amazon and Flipkart operate only as online platforms, hosting sellers who are not associated entities. Online majors insist they are compliant with the FDI norms, but the other side is not convinced.     

A quick chat with Praveen Khandelwal, founder of CAIT and now a BJP MP from Delhi’s Chandni Chowk constituency, reveals the domestic traders’ angst against Walmart and Amazon. First the facts: Some 10 years ago, the Indian retail market was valued at around $500 billion. In 2024, it’s estimated to touch $1.3 trillion, going by the industry projections. He attributes this growth in retail space to economic reforms, increased consumer spending, tech advancements, and the expansion of e-commerce. But when it comes to Amazon and Walmart-owned Flipkart, he’s clear that they have breached rules and adversely impacted Indian traders.

“Unhealthy business practices’’ and “gross violation of rules and policies’’ by foreign-funded e-commerce companies have resulted in market disruption, much to the “disadvantage of traditional retailers in terms of shift of consumers due to uneven level-playing field,’’ Mr Khandelwal argues on behalf of some 90 million traders in India (grown from 50 million 10 years ago). He admits that while a large number of traders have been adversely affected due to e-commerce growth, it has also forced small traders to innovate. Over the last decade, traditional retailers have either adapted by going digital or faced increased pressure to maintain relevance in the rapidly evolving retail landscape. As for quick commerce, he agrees that it’s poised to potentially harm traditional retail significantly in urban areas.

How is the impact of FDI in multi-brand retail going to be different? It has the potential to disrupt the physical retail market more directly, as it draws customers away from the catchment areas of kirana stores, he says. The consolation is that e-commerce currently accounts for only 8 to 10 per cent of the total retail market in India, and, therefore, its impact on overall retail will be relatively less.

Against this backdrop, we have to realise that e-commerce and quick commerce will grow at a much faster clip from here on, and a physical foreign giant may not be very different from an online major in terms of impact on the retail landscape. The realities of 2024 cannot be compared with those of 10 or 20 years ago.