While the storm and fury over the issue of allowing foreign direct investment (FDI) in multi-brand retail has led to a face-off between the Government and the Opposition in Parliament, it is unlikely to be a smooth sail for foreign big box retail even after the removal of policy roadblocks.
The dilemma of existing foreign retailers is an indicator. Walmart is embroiled in a bribery scam investigation in India. Swedish furniture retailer IKEA is grappling with regulatory norms on where all it can invest, while French retailer Carrefour has put its India expansions on hold. Another French retailer Groupe Auchan SA is waiting for State Governments’ stance before finally investing in such destinations.
Lawyers for an international retailer said that there are far too many regulatory glitches. While on the surface, it may seem easy to set up shop, regulatory clearances and licences involved may kill the pace of investment. A retailer still needs about 62 different licences to start their venture in India.
Centre-State divide
Also, international retailers cannot fathom the Centre-State divide. The Central Government may have given a green signal to permit FDI in retail but its implementation is a State subject as the latter has to issue licences to start operation.
So far only 10 States have allowed investment in their territory. Six others have expressed reservations on grounds including job loss and monopolistic behaviour on part of multinational corporations.
Even the path of FDI in single brand retail, which was expected to generate much less political opposition, is turning out to be rocky. According to Foreign Investment Promotion Board data, the Government has cleared four major FDI proposals in single-brand retail so far, including IKEA’s Rs 10,500-crore proposal, Pavers England, US-based Brooks Brothers and Italian jewellery chain Damiani.
Sourcing
Sourcing is still a key issue of contention as brands are still not keen on sourcing products made in India due to stigma related to labour exploitation and lack of quality.
IKEA, which has been on the receiving end of stringent sourcing norms, too has been facing rough winds. FIPB, the nodal agency for sanctioning FDI into the country, had reportedly struck off 18 product categories of the 30 proposed by IKEA including its popular café chain.
Arvind Mayaram, Economic Affairs Secretary, last week clarified the Government’s stance saying that IKEA’s approval is for single brand and the company can only sell stuff that they can brand.
This is a major stumbling block for foreign retailers as they adopt different models for developing economies.
It is not just regulatory hitches that foreign retailers are facing but also real estate which is slowing the entry of retailers. Carrefour, which had planned to expand to South and West, has put the expansions on hold. Sources said that prohibitive real estate costs are preventing the company from going aggressive in India.
Walmart probing its associates for corruption charges also has a deep impact on other retailers. “Companies, even with strong lobby teams, are wary of red-tapism and bureaucracy that is prevalent. Also with shareholder activism gaining ground, companies are careful not to side step issues such as corrupt practices,” a spokesperson for a large retailer said.