FDI in Retail – What really does the Govt wants

This blog post is based on TV Channel reports on FDI policy on Retail as cleared by Cabinet. The basic conditions seemed to be

1. Up to 51% will be allowed.
2. Minimum investment by way of FDI must be USD 100 Million. (Roughly Rs. 500 Crores.)
3. 50 % of the capital needs to be invested in Back end infrastructure.

I am unable to understand what the Govt. hopes to achieve by this Policy. Most channels have gone overboard supporting the policy, going to the extent of saying that this the economic reform that the private Sector wanted.  Till date I have kept away from this issue except plugging  Shri Sekhar Swamy’s article. Even now I am uncertain about the benefits or otherwise of FDI in retail.

But what is puzzling me is this – We just had a mega scam exposed where  one of the channels went overboard saying investments by minor local partner for their 26% stake was at a pittance compared to the 74 % stake of Foreign partner. What happened there is legal as per the laws that stood then. Will this loop hole be plugged in the new laws? Why is the same channel not asking this question? Will they wait for a scam to happen so that they can come out with an exclusive?

Second the Policy says the minimum investment by Foreign Partner should be USD 100 Million (Roughly Rs. 500 Crores). For a moment that every thing is as clean as can be. The foreign Partner brings in his Rs. 510 Crores and the Indian partner Rs. 490 Crores (perfectly as per FDI policy bare minimum.)  We are told 50% of this needs to be invested in Backroom Infrastructure. Let us assume 20 such projects  (or 5 projects 4 times bigger, pick your multiple)  come up in the immediate future. The proposed investment in rural infrastructure will be Rs. 10,000 crores. Is my Government so poor that it cannot invest Rs. 10,000 crores in infrastructure and wants to beg (to borrow that term from Shri Rahul Gandhi) FDI investors.

I am still open on FDI in retail but certainly not at these terms. I am reminded of a story that used to go around in the days when Reliance advertised that by selling a reliance cell connection for Rs. 500 they were fulfillinDhirubhai’s dream. Last heard Dhirubhai was complaining in heaven that his sons were selling off his dreams for a mere Rs. 500.

This Government is doing something similar. They are selling off National dreams for mere pittance.

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