Retail rulebook: India needs a clear policy framework for growth

The All India Consumer Products Distribution Federation recently raised questions on the legality of operating models being used by foreign-owned ecommerce firms, asking the government to step in and correct the anomalies. While there may be merit in the organisation’s claim that foreign firms have violated the policy on foreign direct investment (FDI), it’s time to review the broader issue of complex rules plaguing the retail sector — both offline and online. As advancements in technology outpace regulatory debates, there is a need to bring clarity, transparency and agility to the rulebook, which should be made easy to follow for any retail business. Simpler rules should result in higher compliance on the part of the industry, while helping to draw investors.

 

For specifically ecommerce, expected to grow from $90 billion-100 billion now to around $250 billion by 2030, a comprehensive and lucid policy should serve as a single reference point, so that the stakeholders don’t have to rush from one government department to another for clarifications and permissions of various kinds. Typically, an ecommerce company, especially if foreign-owned, needs to engage with eight to nine ministries or departments for different requirements. An ecommerce policy, which has been in the making for years, should be able to improve the ease of doing business. Policies for the retail sector, calculated at over $1 trillion as of last year and estimated to cross $2 trillion by 2030, have been politically sensitive for several decades, cutting across party lines. This has, in turn, led to layering the sector into multiple nomenclatures and guidelines — a model not seen in most other countries.        

 

FDI in multibrand retail has been in abeyance even after a policy was notified in 2012, permitting up to 51 per cent foreign investment. Protecting mom-and-pop stores or kiranas, a significant political constituency, has been the central reason to resist foreign multibrand players such as Walmart. Unlike multibrand retail, FDI in single-brand retail has worked, and in this up to 100 per cent foreign investment is allowed. Major international brands such as Apple, Ikea and H&M have entered India through the 100 per cent FDI route, though after years of negotiations. The franchisee route is another format for foreign brands, again with different sets of rules. Some of the brick-and-mortar international brands such as Walmart and Carrefour experimented with the cash-and-carry format for business-to-business transactions after their multibrand ambitions failed to materialise in India.

 

With ecommerce emerging as the biggest disruptor, international marquee brands entered this space and, more recently, the quick-commerce segment. Walmart (as the majority stakeholder in Flipkart) and Amazon are both upping their investment in ecommerce and quick commerce. Quite like the brick-and-mortar retail rules, the guidelines for ecommerce vary, depending on the format a company follows. So, there’s a medley of online formats with a range of FDI rules — inventory-led, marketplace, food manufactured in India, and international food brands. A separate category could come up for exports too. The recent complaint by the traders’ body arises from the differentiation between inventory-led and marketplace formats. While foreign-owned ecommerce and quick-commerce firms can’t own the inventories, they can help in setting up the warehouse infrastructure, according to FDI rules on ecommerce. Such differentiation comes in the way of not just attracting investors but it may also be seen as going against the notion of a level playing field on any international platform.