Whether it is a desperate attempt to secure a place in history or a genuine attempt to break policy paralysis, the Cabinet has taken the bold decision to allow 51% FDI in multi-brand retail, albeit with a provision that state governments would decide if they would like to allow it in their states.
Though many see this as a compromise for somehow moving ahead, one feels it is a masterstroke.
Firstly, it suddenly takes away the legitimacy from the opposition to FDI in retail by CMs like Mamata Banerjee and Narendra Modi. An average citizen of Delhi or Mumbai, who wants global brands in his city, is bound to ask, who is she to come in the way of our access to the global retail outlets?
Secondly, if the implementation happens well, soon the citizens of states that have not allowed FDI will see the difference it makes, as they visit cities in other states with such outlets. It will be difficult to resist the “middle class” pressure for the governments then. Imagine, for example, in the National Capital region, Gurgaon having all the big global retail brands, with Noida not having a single one of them!
Finally, if the government and the supporters of FDI in retail, play it well, it should be sold to citizens as a farmers-friendly rather than large business-friendly policy which it actually is. With the farmers and the middle class supporting it, it will only be the small traders who will be opposing it. While they are a powerful community in states like Gujarat, UP, and Tamil Nadu, states like Karnataka, Odisha, and Bihar will not find any strong reason to oppose FDI. Most of India’s potential locations, such as Delhi, Mumbai, Gurgaon, Pune, Hyderabad, and Jaipur will have the new brands. The large cities that will be left out will be Chennai, Bangalore, Ahmedabad, and Kolkata. Out of which, it will be interesting to see how things unfold in Bangalore, as the state has no logical reason to oppose it.
But the most interesting thing to watch will be e-commerce. Initially, the policy was vague about e-commerce. But in April this year, the government clarified that all the rules that are applicable to offline retail would be applicable to e-commerce as well. This clearly meant that all the plans of companies like Amazon had to be shelved. With the new policy change, they can enter in India. So, expect a new era altogether in e-commerce. Good luck, Flipkart!
But interesting will be to see how offline retail brands such as Wal-Mart or Tesco unfold their India strategy in this policy regime? Access to the top two cities and some of the other biggest markets will surely make India entry attractive. But once they enter and build their supply chain, especially the procurement network, there is nothing that is stopping them from selling online to the entire Indian population, irrespective of where the buyers are located. They will not violate any law as they will not have to open any “outlet” in those states.
Question is: will that happen? Will the politicians still not try to hound them? Or as many optimists hope, all this is meaningless discussion, as soon, most states will open up FDI in multi-brand retail.
In either case, a vibrant, more competitive retail market has implications for the e-commerce market.
The fun has just begun.