Still a trickle

After the government cleared 100 per cent foreign direct investment in single brand retail a year ago, the administration and single brand retail majors have groped towards common ground on the contentious issue of sourcing norms.

Though the government’s decision to dilute the 30 per cent sourcing norms have hardly helped lengthen the queue of prospective single brand retailers seeking to enter the Indian market, the clearance given to Swedish furniture maker IKEA – after Pavers England, and the joint ventures of Brooks Brothers and Italian jewellery firm Damiani received FIPB approval – is a clear positive for more retailers to enter the market. Prospects for the entry of Zara of the Netherlands whose application was rejected last year, now look bright. However, it is still early days for the investors to be fully reassured and the element of total confidence to kick in where substantial investments can flow into this sector.

Businesses will still need government permission to do business and source their raw materials, regardless of the government making sourcing from Indian MSMEs by single brand retailers ‘preferable’ instead of ‘mandatory.’ But input costs, and by implication, final product prices are still controlled by the government. Single brand manufacturers and retailers of luxury products with stricter quality specifications have apparently sought to stay clear of Indian suppliers. While the sourcing norm dilution has cheered them up as much as the decision to allow applications from retailers who do not own brands, it is a fact that raw material import duties continue to be on the higher side for the capital goods sector.

As for industrial production, capital goods output as a whole shrunk in September, while industrial goods output touched a yearly low. Dun and Bradstreet expects IIP growth to remain in the range of 2.5-3.5 per cent during October, and below 5 per cent for the next couple of quarters unless the pace of clearances for projects and input supplies improve and investment cycle picks up. Equity investors have responded by showing lesser faith in government-influenced segments of the industry, telecom being a good example. Foreign investors followed suit. It would be a boost for the reforms process, if regardless of the persistent degrowth plaguing different sectors of the economy, foreign investors reinstate their faith in retail. But the investor’s fig leaf perception of government policy needs some changing.