In politics, atmospherics matter as much as content. That, perhaps, explains the manner in which the Centre's proposals on foreign direct investment (FDI) in multi-brand retail have been structured. Not only are they impractical, they ignore the federal nature of the legal framework for such operations. The Centre wants foreign retailers to direct 50 per cent of their total investments into ‘backend infrastructure', procure 60 per cent of agricultural produce from ‘low-income, resource-poor' farmers, and source 30 per cent generally through small and medium enterprises (SMEs). These may not be feasible, simply because big retailers are unlikely to undertake backend investments all by themselves. Typically, what they would do is to set up large centralised distribution centres (DC) to service the various ‘front-end' retail stores within a 400-500 km radius. The DCs would stock goods coming in from factories and farms in the hinterland, for which the investments — say, facilities to purchase, clean, sort, grade, pre-cool, ripen and pack produce or their further cold storage and transport by refrigerated trucks — are more likely to be made by vendors and sub-contractors. Given this, it is difficult to expect half or more of the FDI by retailers to go into backend. No wonder, adhering to the condition has been left for ‘self-certification' by the companies.
Even more unrealistic is meeting the stipulations on mandatory purchases from small farmers and SMEs. The former needs amendments to the Agricultural Produce Marketing Committee (APMC) laws, which few States are willing to undertake. These currently bar anyone from directly buying from farmers without an APMC licence, which is difficult to obtain. The point that procurement at the farm-gate cannot happen without the States playing ball is something even the Centre concedes. A similar ambiguity exists in the 30 per cent sourcing requirement vis-à-vis SMEs: From what is being proposed, it includes those “located outside India”! Should the welfare of SMEs in other countries be the Centre's concern? All this suggests very poor drafting of a policy whose sole aim is, somehow or the other, to make FDI in retail politically acceptable.
That raises the question: Should the Centre be so apologetic about allowing a Walmart or Tesco to set up shop, literally, in India? None of them would obviously be interested in developing a backend ecosystem sans the freedom to hawk the sourced product to the final consumer. In the event, does it matter if they develop the backend directly or through local vendors — who may supply to others as well and could eventually become big in their own right? Wouldn't the latter, in fact, be preferable? To the extent the entry of foreign retailers stimulates (directly or indirectly) the consolidation of a hopelessly fragmented supply chain that benefits neither producers nor consumers today, there's no reason to stop them. And going by how native food catering enterprises such as Saravana Bhavan or Haldiram's have given the McDonalds and KFCs a run for their money, there's no reason to fear them.