INDIA, if you believe the government, will be a land in which Starbucks and Prada thrive but where foreign firms will be prohibited from selling onions. It does not seem like much of a cause for celebration, but the announcement on January 11th that foreign “single brand” retailers could own 100% of their operations in India was meant to show the reform process was on track. It followed a debacle late last year when the government first announced that not only would single brand retailing be opened up, but foreign supermarkets would be allowed to operate in India too—and then was quickly forced into a U-turn on the latter promise after facing a rebellion within its own ranks and from the coalition parties it relies on in parliament.
By emphasising that at least the single brand bit of retail reform is still on track, the government hopes to show the world that India is still open for business. But this is a meek change indeed. Single brand retailers, such as fashion chains, were already allowed to own 51% of their operations. And the political stink of last month is likely to scare those who are not already present because swathes of the political class have been shown to be populist and hostile for foreign firms. Individual states may still choose to override the central government’s rules. Lastly, the reform comes with a large catch: 30% of what is sold must be supplied from cottage industries in India. If you are selling a uniform product worldwide—a sofa or handbag made in China—that is a major hassle.
The hope must be that India is on a journey to the right place, stumbling along the way. Perhaps the supplier rule will eventually be dropped, the argument goes. Maybe reluctant states will learn the error of their ways and open up too, after seeing the success of single brand retailers in other states. And maybe, after seeing an influx of investment from single brand retailers, the political climate will change and it will be easier to pass a reform that lets in supermarkets in too.Interviewed in Delhi earlier in January a government mandarin insisted that the supermarket reform was not dead. Yet all of this seems half hearted. India is a hard enough place as it is for foreign firms to make profits. Adding in a fickle polity just makes things worse. And it is a rather sorry day for progress when a rule tweak to allow Starbucks or Prada to own not 51%, but 100%, of their shops is presented as a meaningful economic reform.
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