On and off FDI rules PDF Print E-mail
Monday, 25 May 2015 00:00
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Delhi High Court will force govt to clarify its policy


It is unfortunate, but not unexpected, given the BJP’s trader base, that finance minister Arun Jaitley refused to clarify the government’s stance on FDI in retail at his press conference last week—it is another matter that FDI in retail doesn’t hit small traders as much as it does big Indian retailers like Reliance and Future Group. In response to a question on his government’s policy, Jaitley said his party was not in favour of allowing this without clarifying whether or not his government would change the existing rules to actually disallow FDI in retail. The finance minister, presumably, doesn’t want to change the rules since he feels, rightly, this will give his government a bad name internationally—but he might as well change the rules since, given his refusal to endorse retail FDI, foreign
retailers know they are not welcome and cannot survive government hostility. The problem for the government is that it may have no option but to spell out its policy clearly. The Retailers Association of India (RAI) approached the Delhi High Court last week, arguing for a level playing field with online retailers. The court asked RAI to go back to the government for a solution and, if none was available in a few months, to come back to it.

RAI’s argument is a simple one. While FDI in brick-and-mortar retail is capped at 51%—under the yet-to-be-changed rules, that is—and not allowed in B2C e-commerce, the reality is quite different. Leading e-commerce players, likeFlipkart, that are mostly funded by FDI, argue that their investments are in keeping with the law which allows 100% FDI in B2B segments—their argument is that they are just platforms for vendors and customers. While this may be right, the outcome on the ground is that products sold through 100% FDI-funded platforms get sold to retail customers while the same doesn’t happen in the case of brick-and-mortar retail. But even without the threat of the court hanging over it, the government would do well to clearly spell out its policy on FDI in B2C e-commerce—commerce minister Nirmala Sitharaman is on record saying it has to be same as for multi-brand retail. After all, billions of dollars of investment are being made in this space, directly or indirectly. Given that e-commerce chains are creating big markets for SMEs and investing big sums in setting up robust supply-chains that benefit the country, the last thing we need is for them to be told, one day, that they are illegal. Of course, if 100% FDI is allowed in B2C e-commerce, it will have to be allowed in brick-and-mortar as well. No country can hope to make it to the big league if it continues to play cat-and-mouse with investors.


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