New Delhi: The decision to ease foreign investment norms for the retail sector will not only generate fresh funds for this high-growth business, it could also help the government quash the notion of ‘policy paralysis´ in its economic reform agenda, experts have said.
The industry has been seeking liberalisation of foreign investment norms for the retail sector for many years. The matter has also been part of the government’s overall economic reform agenda, but has been pending so far due to various political considerations.
Last week, the government decided to allow 51% FDI (Foreign Direct Investment) in the multi-brand or supermarket retail business, and to do away with the present 51 per cent cap for FDI in the single-brand retail business.
The decision would allow global supermarket chains to enter the country through arrangements with minority Indian partners and permit the single-brand retailers to set shop here entirely on their own. The move would help Indian retailers get the much-needed funds for business expansion.
Experts said that the government could be sending signals, through this decision as also a few more steps like Cabinet approval for the new Companies Bill, that it was determined to counter the perception of ‘policy paralysis´ and a slew of long-pending reforms could be announced soon.
“The government is surely attempting to send a strong signal that “policy paralysis” has ended. The government has got into this image repairing exercise and washing some of the earlier policy procrastination,” SMC Global Securities’ strategist & head of research, Jagannadham Thunuguntla, said.
Leading rating agency Crisil’s chief economist D K Joshi also said that the decision was a positive move and could help stimulate the economic scenario.
“This is a positive move which will improve the currently low sentiments in the economy. This is just a start we have to wait and see whether the government is aiming for a second generation sweep in terms of economic policies,” he added.
Last week, the finance ministry also increased the investment limit for foreign institutional investors (FIIs) in government securities (G-Secs) and corporate bonds by $5 billion each.
Besides, the government has listed as many as 31 bills, including mining bill, food security bill, introduction of goods and services tax (GST) and electricity distribution reforms.
“Besides passing the policies, markets will be keenly watching the policy execution and implementation as well, to get full confidence that things have started to move again,” Thunuguntla said.
In the recent past, concerns over the perceived policy paralysis and ‘governance deficit´ in various government departments has been raised by a host of leading industrialists, including Mukesh Ambani, Naveen Jindal, Azim Premji, Keshub Mahindra and Deepak Parekh in the recent weeks.
Besides, foreign investors, rating agencies and research firms have raised the red flag over the notion about ‘policy paralysis´ and a slow pace of economic reforms in the country.
However, the sentiments have changed somehow after the decision to ease the FDI rules for the retail sector and experts have said that the move would stimulate investment in areas like logistics and cold chain, thereby, lowering the wastage and food prices.
“This is positive for the Indian retail sector as it will stimulate investments, especially in logistics and cold chain development (help food companies and reduce food inflation), besides reducing the overhang of debt,” Edelweiss Securities said in its research report.
Expressing similar views, CARE Research said the advent of foreign retailers especially in multi-brand retail segment would primarily address the liquidity constraints of the big Indian organised retail chains faced with dichotomy between store expansion and funding plans.
“In view of India’s growing consumption story with approximately 61.7% of the total population in the age group 15-60 years coupled with growing urbanisation, the country’s private final consumption expenditure (PFCE) is expected to surge resulting in rising demand for the retailers’ products as a whole,” a report by CARE Research said.
Welcoming the government’s move, Edelweiss said, the decision to open the retail sector’s doors has come at a right time when global players, facing headwinds in their home countries, are scouting for new markets and domestic players, on the other hand, are strangulated by piling debt.
CARE Research said, “We believe that such an exposure to the Indian market augurs well for the local organised retail industry (in case of multi-brand retail) in view of setting-up and efficient management of warehousing and supply-chain logistics operations.”
“This in turn would not only ensure reduction in wastages but, also enable the retailers to pass on the benefits to the consumers in the form of lower product prices,” it added.
Dun and Bradstreet economist Arun Singh said “Definitely they have shown tendencies that they are keen and serious about reforms but their keeness and seriousness will be known to the world when they implement these policies.”
He further said that it is a good sign for the overall confidence of the international investor.