FDI: What’s holding back global giants...

The UPA government finally moved ahead with the economic reforms letting 51 per cent FDI in multi-brand retail. Though the reasons to push for the reforms now could be many — such as elections, deteriorating economic situation among others,

as per a recent Knight Frank report, the share of foreign investment in single-brand retail in total FDI inflow has declined from 0.03 per cent in December 2011 to 0.02 per cent in June 2012.

It further points out that the primary reason for reduced interest of foreign players was the sourcing norm from small scale industry. While investment is not an issue for these MNC players with deep pockets, they are more worried whether the quality of products sourced locally would match their standards. The vast difference between their requirement and what they would finally procure locally has held them back from rushing into Indian market.

On the other hand Apparel Export Promotion Council (AEPC) has requested the textile ministry to increase the share of domestic sourcing in multi brand retail from 30 per cent to 50 per cent. The council wrote to the textile ministry recently proposing an increase in sourcing by another 20 per cent from garment exporters. “In order to provide benefit of multi-brand retailing in India, the Government has prescribed 30 per cent sourcing from the domestic market. The SME sector would definitely take advantage of this. In order to immediately take advantage of domestic sourcing, it is proposed that additional 20 per cent sourcing can be mandated by the Government, which can be procured from the existing garment exporting firms, who are willing to take FDI route as per Circular No 1 of 2012 dated 10.04.2012,” said Dr A Sakthivel Chairman AEPC.

There has been a strong resistance to FDI clearance because of the fear that the entry of global retail giants would force the small traders to shut shop throwing millions of people out of jobs. While on the other hand, there has been a positive atmosphere since the time the government announced 51 per cent FDI in mutli-brand retail, among other measures, because it would benefit the organised retail in India. It is estimated that with the entry of foreign players, farmers across India’s six lakh villages would gain greater market access, higher profits, better technology and direct linkage with consumers.

It is predicted that the overall effect of this bold move will accelerate India towards becoming the world’s third-largest economy but miles to go before all the hurdles are cleared.