The current policy debate about allowing foreign direct investment (FDI) in multi-brand retail is a prime example of how policymaking in India is still largely driven by a lack of serious research, discussion and total lack of clarity about the desired outcomes. It also exposes (once again) the short-term thinking of both the political and top bureaucratic order and their ad hoc approach to managing the economy.

Consider the arguments selectively planted in the media by various sections of the government (in the famous BBC series Yes Minister, one of the principal characters famously remarks, “The ship of state is the only ship that leaks from the top!”): FDI in retail is expected to revolutionise our agriculture sector by creating an efficient supply chain for fresh produce, cutting out the middlemen who cheat both farmers and consumers while adding to costs; it will generate huge employment opportunities for lakhs of low-skilled workers in the supply chain; it will provide a modern shopping experience to urban Indians and, not least, it will lead to prices of almost all essentials coming down.

To counter the supposedly negative effects of the entry of MNC giants like Walmart, Tesco and Metro, these arguments assure the public that the threshold of investment has been kept sufficiently high ($100 million) to deter all but the deepest pockets, half the investment will be directed towards creating backend infrastructure like cold chain, procurement centres and so on and that initially only cities with a million-plus population will be entitled to host modern retail outlets. This is downright silly.

Why restrict competition and offer a gilded landing pad to these global giants? Except in the US and Western Europe, it is medium players that dominate the retail segment in Latin America and Southeast Asia. In fact, they give serious competition to large MNCs and keep a check on prices due to their lower overheads and local sourcing networks. Supply chain technology is not rocket science and is available off-the-shelf, so what exactly are we trying to do by creating such a high entry bar?

Indian policymakers obviously feel disinclined to undertake serious background research before they embark on policy reforms. If they had, they would have discovered that the history of organised retail (and it well documented) shows that food and perishables are not among the first sectors addressed by multi-brand organised retail. Typically, in North America and Western Europe, organised retail added food and perishables to its store shelves between 10-15 years after launching operations and creating sustainable supply chains.

It is unlikely that the Indian experience will be vastly different (though we love to delude ourselves that we are exceptional to historical facts). MNCs eyeing an Indian entry are not going to be significant players in the marketing of food and perishables in the short to medium term, concentrating first on packaged goods which are easier to source, transport and sell. It is only when they are well established in their operations will they turn to agriculture, in any case the most difficult and risky sector to address.

It is also noteworthy that policy makers hankering to see global brand names on Indian store fronts have obviously not studied the experience of domestic organised retail, which has been around for almost three decades and has only been able to carve out a 3% share of the total retail market estimated at $700 billion. A combination of absurdly high urban property prices, cussedly short-sighted taxation policies at the state and local level and, above all, the stranglehold of the APMC Act over marketing of agri-produce have ensured that efficient supply chains could never be built on scale.

Local players have been screaming from every industry forum about these issues for years but so far the government has ignored their pleas. It is mystifying how foreign players are expected to get around these constraints, especially the ridiculous provisions of the APMC laws which are controlled by the state governments and which have created oligopolies in the marketing of agri-produce. Without a single, national market and removal of movement controls on food and perishables, the prospect of an efficient supply chain in agriculture will remain a pipe dream.

The 1970s mindset of policymakers is also revealed in the manner in which they expect FDI to meekly go in the direction it has been pointed towards. Consider this: not only must 50% of the investment go into creating backend infrastructure but even a certain percentage of sourcing must take place from “small enterprises”. Are we back in the 1970s licence raj era? Why would anyone invest huge sums in creating backend supply chains and have only 53 cities to open stores in? How will the sourcing from small industry be verified, or more pertinently “inspected”? Are we not opening the doors to more rent-seeking opportunities for local authorities like mandi, municipal, industry, labour and police inspectors?

The sum total of the so-called policy on FDI in retail is another example of poorly conceived, lazily argued and unrealistically premised public policy making which has become the hallmark of governance in recent times. While opposition to the proposed policy changes are largely based on settled political postures, the real criticism should be about its lack of economic sense and confused, please-all approach. Even if it goes through, it is unlikely to make any significant change in the urban shopping experience.