What does India have against the world's big grocery stores? Photographer: Udit Kulshrestha/Bloomberg
What does India have against the world's big grocery stores? Photographer: Udit Kulshrestha/Bloomberg

Two months into the tenure of India’s new and ostensibly pro-business government, what’s happening with the long, drawn-out issue of foreign direct investment in the multibrand retail sector?

The answer: nothing. And that’s how it’s going to be for the near future. Like the head of a family confronting a distressing new development that can be neither easily terminated nor encouraged -- a junior member’s romance with a person from another religion, news of war between siblings -- the new government is adopting a policy of benign neglect on the issue, hoping things will take care of themselves and everything will go back to the way they were.

So the doors remain open -- on paper -- to supermarket giants such as Wal-Mart Stores Inc. to set up majority-stake operations in India. But the new government headed by Prime Minister Narendra Modi isn’t going to be seen as welcoming, and it would prefer individual states to do the work of holding them off, which they have the right to do under current regulations.

Having vigorously opposed the move in 2012 to open up the multibrand retail sector to foreign direct investment -- ostensibly to protect the livelihoods of the millions of small grocery stores, or kirana shops -- Modi and his Bharatiya Janata Party would be seen as reneging on their stance and betraying one of their core constituencies if they now welcomed foreign investors into the sector, as they have in many other parts of the economy.

But having won a very comfortable majority in the May elections -- the most comfortable base in parliament in three decades -- Modi would, one would think, have moved immediately to reverse the ruling on FDI instituted by the previous government.

But the new prime minister doesn’t want to be seen so early in his tenure to be against foreign investment, either. So things remain where they are. “No decision has been taken," Nirmala Sitharaman, the new commerce and industry minister, said last week.

Hardly the sort of reassurance a retail company wants if it plans to invest many millions of dollars in a new market, even if it’s a massive one (the fifth-largest in the world) worth more than $500 billion annually and growing at a rate of about 7 percent. Some multinationals have decided the wait isn’t worth it: Earlier this month, the French retail giant Carrefour SA announced it was packing up operations in India after four years of hovering on the edges of the retail scene. Last year, Wal-Mart and its local Indian partner, Bharti Enterprises Pvt. Ltd., also parted ways in the wholesale business they had set up together. (Currently, India allows foreign investors a 100 percent stake only in single-brand retail operations.) Meanwhile, such prominent Indian states as Rajasthan and Delhi have already barred FDI in multibrand retail.

The whole matter highlights the difficulties of crafting policies that shift the status quo in such vast markets as India's. But much of the noise about the “the Wal-Mart effect” -- small shopkeepers having to close up shop, suppliers being forced to cut their own margins, wages being driven down to the lowest legal requirement, Indian manufacturers being priced out by cheap Chinese imports bought in bulk by a vast multinational company and “dumped” in India -- is unnecessarily alarmist.

First, unlike the swift inflows and outflows of foreign finance capital in Indian stock markets, money invested by multinationals in the retail sector would have to be “patient capital,” invested over many years for the creation of efficient supply chains and the building of roads, warehouses and cold storage. Second, one would think that private investment in the supermarket sector would be one way of generating employment in an economy that must deliver many more jobs that it currently does thanks to a demographic bulge. Thirdly, millions of unemployed youth would be willing to work at the current minimum wage -- especially when it also involves learning new skills -- that they’d actually jump at the chance to work for a major retailer. (Many already do so at Indian-owned supermarket businesses, such as the Big Bazaar chain or Reliance Fresh.)

Last, many of the old social hierarchies of caste continue to operate by tacit consensus in Indian retail (as in all of Indian business), from the cartels of traders that control the sale of fresh produce in India’s wholesale markets all the way down to the choice of the (middle-ranking caste) grocery shop owner about whom to employ for deliveries. Cumulatively, these form a mass of entry barriers to even simple kinds of employment, and sometimes entrepreneurship. Whatever the levels of capitalist cynicism that major foreign retailers bring to the trade, a certain welcome innocence about caste would make hiring practices an ally to the Indian republic's stated aim of building a more equitable society.

But that’s just my view of the matter: the view of an Indian consumer, and someone whose own trade isn’t overly threatened by shifts in Indian economic policy. I doubt Wal-Mart’s intrepid strategies extend to flooding the market with cheaper, or better-looking, columnists.

There’s no direct democracy in India (though one Indian party -- which is against foreign direct investment in retail, by the way -- did try out a system of direct referendums when it won power in Delhi last year). That means that those who have the most influence on policy are the ones who organize their interests best. In this case, that would be the Confederation of Indian Traders, which has a vast base and has lobbied strongly against such foreign direct investment, while no federations of consumers, or the unemployed, have gone marching in the streets for it.

All economies have their quirks and psychological biases. Perhaps Indian consumers don’t mind their rupees going to multinational companies when it comes to cars or flat-screen televisions but resent the thought of a “foreign hand” in their fruits and vegetables; after all, India was a predominantly agricultural society until very recently. Only three things could change the status quo in the near future: an economic crisis that drags down growth and intensifies the need for foreign investment (which was how the previous government opened the doors to retail giants in the first place); piecemeal reform by stealth; or the willingness of a major retailer to brave it out in adverse policy conditions.

Two months from now, Indian Finance Minister Arun Jaitley and a host of other luminaries will attempt to sell their nation's growth story to foreign investors at the two-day India Investment Forum in Manhattan. It’s extremely unlikely, though, that India’s openness -- on paper -- to foreign direct investment in multibrand retail will be part of the pitch.

To contact the writer of this article: Chandrahas Choudhury at chandrahas.choudhury@gmail.com.

To contact the editor responsible for this article: Brooke Sample at bsample1@bloomberg.net.