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Hobson's choice in retail PDF Print E-mail
Tuesday, 17 November 2015 00:00
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Have to ban e-tail FDI if multi-brand retail not freed

 

Given the BJP’s retailer support base, it is not surprising the party has not been in favour of opening up multi-brand retail to foreign direct investment (FDI). Though, given how small a challenge foreign retailers like Walmart present to the BJP’s mom-and-pop-store constituency—most residential areas lack the kind of space big retailers typically need for their shops—it is big Indian retailers who are actually being protected by the restrictions being put on FDI since it is they who are competing with the Walmarts and the Carrefours. Of course, since restrictions on FDI would be considered as rolling back reforms, considering the UPA had allowed such FDI, the government has been blowing hot and cold on the matter—the law remains on the statute but top politicians including the finance minister have been saying the party is against such opening up; in other words, FDI can come in at its own risk. The time for such sophistry, however, has run out, and the government now has to come out in favour of backing what the UPA did.

Two retailer associations, the Retailers Association of India and the All-India Footwear Manufacturers And Retailers Association, approached the Delhi High Court some months ago arguing that e-tail players—like Flipkart and Amazon—had been allowed to bring in FDI while they were not; in other words, it was not a level playing field since it is FDI which has allowed the Flipkarts and Amazons to offer huge discounts and gain large market-shares, at the expense of big Indian retailers; indeed, e-tailers have actual potential to hit mom-and-pop stores since they can be located far from the residences they serve. The case comes up for hearing on Thursday, and the government will have to file an affidavit by then on what its position on the matter is. In other words, it will have to define what e-commerce is. If it is defined as including a ‘marketplace’—where FDI is allowed—this will allow the Flipkarts and Amazon to carry on business; if the definition excludes ‘marketplaces’, both firms, and several others, will be in contravention of the law.

So far, the government has argued its consultations with various state governments are not complete. While Congress-ruled states had indicated they were in favour of FDI when the UPA was in power, according to Mint, BJP states like Rajasthan and Madhya Pradesh have now also plumped in favour of FDI in multi-brand retail on grounds of a level playing field. But even if BJP states are not in favour of FDI, the government really has a Hobson’s choice. If it defines e-commerce as including ‘marketplaces’—it has to if it does not want to face investor opprobrium—it will have to allow FDI in multi-brand retail, essentially go along with the UPA’s policy. And if BJP governments choose to not allow FDI in multi-brand retail in their states—even while the Centre OKs it as an umbrella policy—the question is whether these states will stop e-tailers like Flipkart and Amazon from delivering in their states. Chances are, there will be clarity on FDI in multi-brand retail very soon.

 

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