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Abstract
In the past five years, India has witnessed significant debate, brainstorming sessions
and political drama over the issue of liberalizing retail services for foreign investors,
particularly in the multi-brand sector. For the most part, the arguments have concerned
the fate of local retailers, “kirana shops,” pursuant to permitting foreign direct
investment (FDI) in this sector. While one school of experts has expressed
apprehension about local retailers being eliminated from the market if such FDI is
permitted, the other school has advocated that such FDI will, aside from boosting the
economy and foreign exchange reserves, generate employment on a large scale.
Balancing both of the foregoing concerns, the Indian government recently liberalized
FDI in this sector up to 100 percent in single-brand retail and up to 51 percent in multibrand
retail services. Although this move has been appreciated by the industry and the
investor class, such investments are subject to a significant number of restrictions in
terms of minimum capitalization, local sourcing of materials, prior approval and other
such requirements.
Needless to say, India, being a sovereign nation, has the authority to impose such
investment restrictions at the municipal level. Having said that, given the unification of
the world economy through globalization, it would be inadequate and myopic to
confine the assessment of such restrictions to the municipal level. The justifiability of
such restrictions needs to be assessed at the global level against the country’s
international commitments, more specifically commitments under the World Trade
Organization (WTO), considering that WTO membership comes as a package of obligations across different areas, namely trade in goods, trade in services and traderelated
investments. While much has been deliberated with regard to the merits and
demerits of India’s restrictions on FDI in retail services from the perspectives both of
economics and of India’s municipal laws, the question of whether such restrictions are
sustainable against the radar of the WTO has been overlooked on most debate
platforms.
Therefore, this article attempts to assess India’s FDI norms in the retail trade
sector vis-à-vis its commitments, if any, under the General Agreement on Trade in
Services (GATS) within the auspices of the WTO. Further, this article reviews the
commitments made by a few other countries in retail services and the nature of the
limitations imposed by such countries. Also, this article suggests a way forward for
India, factoring in the various trade barriers applicable to retail trade services, whereby
the country might harmonize its municipal investment restrictions with future
commitments under GATS.