The Pitfalls of FDI in Multi-Brand Retailing in India

By Shekar Swamy | Briefing Paper # 3 | October 2011

There is a growing pressure on policymakers from foreign governments and big retailers to permit foreign direct investment (FDI) in multi-brand retail in India. At present, India allows 51 percent FDI in single-brand stores (e.g., Apple) and 100 percent FDI in cash & carry and wholesale trading. The retail trading by foreign multi-brand retailers (e.g., Wal-Mart Stores) is prohibited under the current regulatory regime.

The Committee of Secretaries has recently recommended that the sector be opened, with some riders that are easy to meet. Understandably, big domestic players in the retail business would welcome such a step, as they will be direct beneficiaries of investments into the sector. The government is yet to issue its formal notification, presumably evaluating the implications.

It is imperative that policy making with respect to FDI in multi-brand retail must take into account the unique situation of India, and not blindly follow Western practices. No other country (except China) faces the challenge of meeting the needs of 1.2 billion people. No other country has close to 400 million people below the poverty level, to be given some basic livelihood. No other country has the social complexity coupled with a fractious polity, which can erupt into social unrest with ease, when inherent balance is disturbed. In such a scenario, policymakers must serve the needs of the broadest base of the population, not just those at the top of the economic pyramid.