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Why FDI vote win is not enough assurance for investors

A favorable vote in Parliament for foreign direct investment in retail sector does not mean the end of the obstacles for multinational retail companies in India. The way the central government managed to win the vote has clearly shown that it was not a vote in favor of FDI in retail, but it was a vote for saving the prestige of the government, which was determined to go for this policy. Any investor, while making a large investment has to take into account the whole business environment of a country in totality.

Policy of the government is just one factor; the investors have to see the prevailing political environment of the country into considerations as well. The present policy of the government did not need parliamentary approval. What it needed was an executive order of the government. The Central government had already taken this decision.

 The Parliament debated and voted it later on. The manner, in which the vote was passed, showed that the majority of the political parties were not in favor of it. Even the allies of Congress in UPA were not with it. All the parties, which voted for it, were not supporting it. They supported it, because they had to support the government. This fact must have been noted by the foreign companies, while investing in retail sector of India. DMK is the second largest constituent of UPA, it voted in its favor, because it did not want the government to get embarrassed over this issue. Another constituent of UPA, Nationalist Congress Party, which had supported and voted in its favor, too backtracked outside Parliament saying that it is not in favor of Multi Brand Retail stores of foreign companies in its stronghold Maharashtra. Even the Congress unit of Kerala is against it. With so much opposition to FDI in multi brand retail by those, which voted for it in Parliament does not augur well for the foreign companies. This is not the end of the problems for the foreign investors; even the policy adopted by the government is not very conducive.

There are many conditions, which go against the investors. Foreign companies have to spend 50 percen in infra structure development of its retail network and they are not allowed to open their retai outlets in cities and towns below a population of 10 lakh.

According to 2011 Census of India, the cities having population over 10 lakh is only 46. It means as per policy of the government, the foreign companies having joint ventures with local Indian companies can open up their outlets in 46 cities. In practice, even these 46 cities are not available for them for their multi brand retail stores. They have to take permission of the respective state government as well for that. The Central Government could muster the support of regional parties only on the plea that if they want, they may not allow such FDI in their states. This leaves states available for investments, which are governed by Congress only. States governed by Congress and having cities with over 10 lakh populations are Maharashtra, Kerala, Andhra Pradesh, Delhi, Haryana and Rajasthan. Though, Uttarakhand, Assam and some other states are also governed by Congress, but they did not have cities having population over 10 lakh.

Nationalist Congress Party based in Maharashtra has opposed multi brand retail outlets of foreign companies in its state and Kerala government, too, is against it. It should be noted that in Kerala their was a movement against the cold drinks like Pepsi and Coca Cola and a type of Swadeshi movement was launched to promote coconut water. UDF led by Congress may find it difficult to face the political challenge posed by LDF, if foreign multi brand retail stores are allowed there.

That is why, both the alliance governments led by Congress in Maharashtra and Kerala may not allow multi brand FDI under the pressure of their alliance partners and due to competitive politics prevailing there. Andhra Pradesh is another state, which is governed by Congress and has many cities having more than 10 lakh population, but the whole state is in turmoil over the issue of separate Telangana State.

 Movement causes disruption at times and both pro and anti movement related to Telangana are equally strong. Such environment is not conducive for making business decision and heavy investment in retail sectors by a foreign company. It implies there are only two states and one union territory, which qualify for foreign investment in Multi Brand Retails at the moment. They are Rajasthan, Haryana and Delhi. In Haryana, there is one city Faridabad, having population over 10 lakh and in Rajasthan there are three such cities- Jaipur, Jodhpur and Kota.

If any foreign company wants to make investment by entering into joint venture for multi brand retail stores, only five cities are practically available for them as of now. In Delhi and Rajasthan, Assembly elections will be held within a year and the present Congress governments may change after the elections. BJP is alternatives to Congress in both states and it is announcing that it will revert the policy of present government, if voted to power after next Lok Sabha elections. That is why; even opening up stores by foreign companies in Delhi and Rajasthan is a risky proposition.

There are other problems too for foreign companies. For multi brand retails stores they need long and huge supply chains. They cannot function without these chains. What will happen if the neighboring state opposed to foreign company does not allow the facility of chains passing through it territory?

Companies like Wal Mart setup their stores in the suburban areas, where land is available in plenty and is relatively cheaper, because their stores are fairly large. But the government policy of India allows their stores in densely populated cities. This poses another problem for them.

Political parties of India compete among them over populist issues. Since the 4 crores retail outlets of India are claimed to be at stake, this provides a strong issue for populism. Indo American Nuclear Deal could not become a political issue during the elections, because it did not concern directly with the masses, but FDI in Multi Brand Retail is the concern of around 20 crores people dependent on 4 crores such outlet for their livelihood. This is the reason, that the opposition to FDI in retail would be a continuous phenomenon in Indian politics and those investing in India will take into account all these factors before deciding on the plunge. (IPA)
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