The logjam over FDI in Indian continues as there is no consensus yet. However, a trial of strength over the issue will be witnessed in Parliament next week with the Lok Sabha deciding to have a discussion on December 4 and 5 on the issue under a rule that entails voting, a strident demand of the opposition.
The policy of single-brand retail was adopted to allow Indian consumers access to foreign brands. FDI in single-brand retailing was permitted in 2006, up to 51% of ownership. Between then and May 2010, a total of 94 proposals have been received. Of these, 57 proposals have been approved. A sum total of US$196.46mn under the of single brand retailing category was received between Apr 2006 and Sep 2010.
Multi-brand retail has been an issue that has split the political parties and resulted in disrupted parliament sessions. Indian retail has traditionally been a mom-pop or a corner shop operation that has not reformed substantially over the years. The introduction of FDI reforms is expected to change the current retail landscape completely. Indian retail is extremely lucrative as a sector and large international players are expected to make substantial investments once the norms are relaxed.
The Indian Council of Research in International Economic Relations, a leading economic think tank in India, which was appointed to look into the impact of BIG capital in the retail sector, has projected the size of Indian retail will be c.$496bn by 2011-12. ICRIER also came to conclusion that investment of "big" money, large corporates and FDI, in the retail sector would in the long run not harm interests of small, traditional, retailers.
India's closest peer in terms of size of population, China, has an organised retail market almost 3x that of the Indian market. Brazil, which is less than a 1/6th of India in population, has a organized retail market of almost 6x of that of India. This clearly demonstrates the potential size of the Indian Retail market. It is because of this potential size that there is a lot of political uncertainty over the reforms. A lot of local retailer's lives are going to change beyond recognition.
Since it is a competitive world where companies have the option of investing in other growth markets like China and Brazil, it is essential for the government to introduce the required reforms and lay out a path for the sector going forward. This is an essential step in giving comfort to International retailers while entering the Indian retail segment. And reform is inevitable in the end, so the government, especially the current opposition, is going to do itself no harm by being proactive and forward thinking on the matter.