The government decided last Wednesday to permit 100 per cent FDI in single-brand retail on the automatic route, upgrading the earlier provision of permitting a much smaller percentage FDI in trade through permission in each case. The new move could be the thin end of the wedge for a broader FDI participation in multi-brand retail.
As Gujarat Chief Minister in 2012, Mr Narendra Modi had been in the forefront of opposing the Manmohan Singh government’s move to give clearance to FDI in multi-brand retail. The BJP’s plea was that family-run mom and pop stores, a part of its social base, will be affected. Criticising the move, Mr Modi had tauntingly asked if the government was trying to permit “Italian” capital in trade — a dig at Congress leader Sonia Gandhi’s country of origin. The Left parties were the only other key Opposition bloc to be on the same side as the BJP.
The Modi Cabinet has dropped the 30 per cent mandatory local sourcing that the Manmohan Singh regime had proposed for FDI in trade entrants. This could especially hit informal and small and medium sector manufacturing, which is yet to recover from the shock of demonetisation. RSS affiliate Swadeshi Jagran Manch has opposed the government’s decision, especially the dropping of the mandatory local sourcing provision, though it is doubtful it can take its opposition far. If fire walled to protect domestic manufacturing, FDI in retail would not have been unhelpful. But it has come at a time when international FDI flows have declined sharply.
