Organised and unorganised retail can co-exist, says report.
Domestic ratings agency Icra has said there is a “compelling case” to revisit
the “restrictive” retail foreign direct investment (FDI) policy as India has not
been able to get sizeable investments despite opportunities.
Citing examples of other emerging geographies to allay concerns, the agency
said organised and unorganised retail can co-exist.
The multi-brand retail sector remains “most restrictive” to FDI, with a cap of
51 per cent ownership and guidelines relating to mandatory investments in
back-end infrastructure and local sourcing norms, it said.
“There is a compelling case for the government to revisit its FDI policy. The
investment requirements of the sector are sizeable,” its Vice President and
Co-Head for Corporate Sector Ratings Kinjal Shah said.
Relaxing norms
According to data released by the Department of Industrial Policy and
Promotion (DIPP), India received USD 1.4 billion in FDI in the retail sector
between 2000 and 2018, which is only 0.36 per cent of the overall FDI
inflows, it said.
The agency said a population of over 1.3 billion with favourable
demographics and a rising middle class present a big opportunity for foreign
retailers, who have actually evinced interest. Icra said “restrictive nature of
the retail FDI policy” has curtailed the foreign retailers’ operations.
Shah said there remains on-ground opposition for multi-brand retail from
local traders, who fear risk of being thwarted by the deep pockets and
increased competition from foreign players.
Pitching for relaxation in inter-segmental restrictions for multi-brand retail,
Shah also said India needs to up the caps on foreign ownership in the
segment.
“There is limited domestic capital being invested in the sector and FDI flows
can bridge capital deficit and remove the supply chain inefficiencies,” Shah
said.
Citing global experience to drive home the point of co-existence between
organised and unorganised retail players, the agency said China saw a spike
in employment and number of traders since liberalising on foreign
ownership in retail in 1992 and Indonesia is witnessing traditional retailers
holding on to food selling.
It can be noted that relaxations in foreign ownership is an extremely sensitive
subject politically in the country which faces opposition from large segments.
Source: The Hindu Business Line, India Wednesday, 16 January 2019