We have always talked of “single-window clearance” for decades now. This is yet to materialize, but in the meantime, to confuse and compound the issue, the Department of Industrial Policy and Production (DIPP) has stated that a multi-brand entity cannot engage in any other form of distribution
Our government works slowly. Almost everything is done by non-professionals and investment plans are delayed considerably due to lack of planning and, more often, foresight. The chosen words are ambiguous, perhaps, intentionally!
The issue of permitting foreign direct investment (FDI) in multi-brand retail trade was announced nine months ago. The proposal, itself, was ambiguously worded, presumably in order to permit amendments and corrections on the way to its development.
The original idea was to ensure that these foreign giants do a 30% sourcing from indigenous small and medium supplies. The commerce and industry ministry has now clarified that these small and medium industries must have investments in plant and machinery, not exceeding $1 million. This excludes fresh produce and caters only to manufactured and processed items.
So, before the FDI gets into a business act in this area, they need to ensure that they are dealing with an entity complying with the above stipulation. Would they need someone’s certificate or attestation before the work commences?
The new set of clarifications issued by the commerce and industry ministry further stipulates that these front-end stores will have to be company owned and operated, which means they can not be franchised. Does this mean that every city/town they enter will be treated as a “new unit”?
We have always talked of “single-window clearance” for decades now. This is yet to materialize, but in the meantime, to confuse and compound the issue, the Department of Industrial Policy and Production (DIPP) has stated that a multi-brand entity cannot engage in any other form of distribution. What happens if it decides to go in for a processing industry allied to the products that it handles?
Why not one ministry or special organization handle all issues relating to Foreign Direct Investments? This apex authority must be able to answer all the questions that may arise rather than several departments and ministries coming in the way.
In the multi-brand retail, FDI is expected to bring in $100 million, 50% of which is expected to be in “back-end infrastructure”. Since foreign retail cannot enter the market through acquisition of existing retail chains, they will have to operate totally independently.
Digressing for a moment, what would a greenhorn FDI face in India?
First is to choose a town or city with a minimum one million population and ensure that it has both a large enough hinterland to supply (and consume) consumer durables manufactured by the small and medium units with an investment of about $1 million in plant and machinery.
Second, it must have, preferably, a satellite of maybe 10 to 15 villages that can supply fresh agricultural produce, both organic and non-organic.
Third, it must be ready and willing to locate a suitable collection point to warehouse the products it plans to retail.
Fourth, FDI must bear in mind that they are now not allowed to retail through e-commerce or apply wholesale methods. They are expected to ‘retail’ their products directly. While a restriction on wholesale is understandable, why should there be any ban on e-trade, considering the growth of computer education in the country?
Fifth, why not the government take the trouble to spell out, exactly, what it means by saying “back-end infrastructure”?
Sixth, any responsible FDI having long-term interest in mind, will automatically plan to include a dedicated transport facility for the perishable and non-perishable products they propose to handle.
Seventh, they would have a separate plan or division to meet the farmers’ requirements in terms of supplying seeds, fertilizers, farm equipments, extend assistance in power supply and adjustable and other forms of temporary credits that may be required while handling agricultural produce. They would need to educate the farmer with better and improved methods of cultivation, crop maintenance and harvesting techniques too.
Eighth, FDIs will also do well if they plan and install packaging units to ensure quality and freshness of the produce for their exports to their home country. They would remember that there are a growing number of expatriate Indians living in their home country who generate the demand for Indian origin goods.
Ninth, likewise, in case of certain items like fruit pulp and juice, FDIs can also plan to include associate processing units—whether it is for fresh vegetables or fruits or both—as these will enable their direct contribution to increase employment of local people. And earn foreign exchange!
And, finally, all these will enable FDI to retail their supplies at competitive price, make a profit and help eliminate the middlemen to a great extent, though total eradication of these blood-sucking middlemen is unlikely, as they will somehow manage to become active in such ventures. We need to take this in our stride and watch carefully the progress this innovation brings to the country and its people.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)
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