Assume they're not here

Politics can be the art of make-believe, but what is happening on the question of allowing foreign direct investment (FDI) into retailing invites disbelief. Thanks to the Left parties, this is considered a bad idea and the government is not going to allow it. Undeterred, organised retail is spreading its wings anyway""from less than 1 per cent of the market in 1999, organised Indian retailers already account for 3.5 per cent of the market today, and are projected to get between 8 and 10 per cent of the market by the end of the decade. To the extent that the politicians' concern has been the fate of small shopkeepers, these have to reckon with competition even if there is no FDI. If the neighbourhood corner store is in need of protection, then political parties should prevent Pantaloon Retail from expanding, and Reliance Retail from taking off. Nor is it correct to argue that foreign retailers have deep pockets while local entrepreneurs cannot match them""that is, a Wal-Mart will drop prices so much that it will drive out the kirana but Reliance Retail will not! Apart from the fact that dropping prices helps the consumer, who spends 40 per cent of his budget on food and clothing, local players have deep enough pockets as well""Reliance, for instance, is planning to invest Rs 25,000 crore in its retail business while Wal-Mart is actually closing its operations in some countries.

The issue is not in fact the desirability of having FDI in retail, it is about the practicality of having a policy that bans FDI in anything other than single-brand retail. Big multi-brand retail FDI is either already in India or is in the process of coming in through a variety of business arrangements, so the politicians are only fooling themselves and the country. The Bharti group is said to be on the verge of tying up with the UK retail chain, Tesco. The French hypermarket chain Carrefour is likely to come in through a partnership with the Landmark chain, which is already in the country, or through the cash-and-carry format, which has seen the German giant Metro come into the country already. The Tatas have a tie-up with Woolworth of Australia. There can be little doubt that more such arrangements are being worked out. In the 1990s, German retailer Nanz and the American retailer Marsh set up outlets in partnership with the Escorts Group. The RPG Group, similarly, had a tie-up with Dairy Farm of the US for its Foodworld chain. All this at a time when India does not allow FDI in retail!

The policy of not allowing FDI in retail is merely encouraging people to come in through side doors rather than a front entrance. If Wal-Mart is not allowed to come in on its own, it will figure out a way to come in with an existing Indian player (DLF is mentioned as a potential partner) with some complex holding structure ensuring that it does not break the law. In the telecom industry, where the government put a cap on equity levels, such holding structures have been common. The irony is that the Left opposition is not stopping FDI in retail, it is only ensuring that large Indian retailers get better valuations. That is not a bad thing, but is that what policy is about?