Though India allowed Foreign Direct Investment (FDI) in what is called multi-brand retail through the…

Question

Though India allowed Foreign Direct Investment (FDI) in what is called multi-brand retail through the joint venture route in September 2012, the FDI, even after a year, has not picked up. Discuss the reasons.

Ghissu Editorial · Accepted Answer

FDI in multi-brand retail did not pick up because the 2012 policy imposed heavy sourcing and back-end conditions, left consent to individual states and faced a threat of reversal before the 2014 election. A year on, only Tesco had applied and Walmart had exited its Bharti venture.

**Introduction**

India allowed 51% FDI in multi-brand retail trading (MBRT) with government approval in September 2012, expecting global chains to build cold chains and cut wastage. A year later only Tesco had applied, and Walmart had ended its joint venture with Bharti.

**Conditions Built into the MBRT Policy**

SKETCH: fishbone | Why MBRT FDI Stalled
effect: No MBRT investment
- 30% local sourcing
- Back-end mandate
- State veto
- Million-plus cities
- Political uncertainty
- Slowdown and rupee

1. **Sourcing and back-end mandates**: A minimum of US$100 million, half of it in back-end infrastructure, and 30% sourcing from Indian small industries clashed with the global sourcing models of chains like Walmart.
2. **Patchwork of state consent**: Each state could accept or reject the policy, and only about a dozen states and UTs, such as Delhi and Maharashtra, agreed, ruling out a national network.
3. **Location and format limits**: Stores were confined to cities with over 10 lakh people, where land was costliest, and online sales were barred.

**Political and Economic Climate**

1. **Reversal risk**: The principal opposition party opposed the policy in Parliament in December 2012 and promised to undo it, so investors waited for the 2014 election.
2. **Scrutiny of the first mover**: Walmart's Indian investment drew an Enforcement Directorate probe and a US bribery inquiry, deterring others.
3. **Macroeconomic stress**: Slowing growth and a rupee near 68.8 per dollar in August 2013 raised the cost of a long-gestation investment.

**Conclusion**

The FDI stalled because the policy was hedged with conditions, split by state vetoes and exposed to political reversal. Stable national rules and investment in agri-logistics would let retail FDI deliver better farm prices and less wastage.

Though India allowed Foreign Direct Investment (FDI) in what is called multi-brand retail through the joint venture route in September 2012, the FDI, even after a year, has not picked up. Discuss the reasons.

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