Modi govt could have cleared up FDI in retail mess: Here's how they missed the chance

By S Murlidharan The Modi government has passed up an opportunity to leave its own firm imprint on the FDI in both brick and mortar as well as online retail policy. The occasion was a fresh compilation of the compendium of FDI in various sectors. Instead it has meekly and pusillanimously rubber stamped the UPA government’s policy with a view to be seen running with the FDI lobby while really hunting with the small trader hounds. This Jekyll and Hyde policy projects the nation in a bad light.[caption id=“attachment_2227400” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] The UPA policy needed tweaking. And before that the recalcitrant small trader lobby needed managing. If farmers could be taken head on, on the land acquisition issue, there was no reason why small traders could not be similarly tried to be persuaded. Ground should have been prepared in the freshly sworn in BJP states like Maharashtra and Gujarat. Like farmers’ sons being guaranteed jobs in factories, small traders should have been assured of their continued existence by earmarking big retail zones in the periphery of big cities (10 lakh or more of population). Apart from winning over the recalcitrant domestic constituencies, the government also should have changed the policy itself. First, by saying in so many words that the foreign retail chains would have to meet their foreign capital requirements themselves either through exports or through equity infusion. If imports become necessary from China and other places, they must be met out of exports which would compel them to give a leg up to our indigenous industries like the Banarasi saree industry. Secondly, the back end investments must be mandated to be made first instead of being allowed to put up the stores first. That would show their earnestness in investing in rural infrastructure like food processing plants, cold storage etc. where maximum loss to elements takes place. Lest there are lingering doubts over such investments going up in smoke with the continued intransigence of state governments, select state governments must have been persuaded to sign MOUs with the foreign retail chains. FDI in brick and mortar retail chains has numerous advantages, and they are fairly well known to bear repetition. Suffice it to say, better farm gate prices, lower consumer prices and lower wastage are the main attractions besides of course the surge in blue collar employment opportunities, inflow of dollars and enhanced tax collections for governments both in view of heightened economic activity and plugging of leakages with the retail chains coming under the GST discipline when it kicks in and under the extant VAT regime. The opportunity to call the bluff of online traders both Indian and foreign has also been missed. The Indian e-tailers are practically foreign with private equity from abroad lubricating their virtual world wheels. All of them are flouting the FDI norms that frowns on foreign investment in B2C by claiming to follow the marketplace model which according to them is B2B, kosher under the FDI policy. That there is a lingering doubt about this claim called for a careful appraisal that in any case was promised by the Commerce Minister Nirmala Seetharaman. Flipkart and Amazon for example are not mere service providers as they claim to be in order to be on the right side of the law. They seem to be traders in their own right. In any case the issue ought to have been examined once for and all not only to clear the air on FDI but also to enable VAT authorities to go ahead in a sure-footed manner. The BJP government would not have encountered much difficulty in bringing round the Congress on the issue because like hike in FDI in insurance, FDI in retail too is a UPA baby.