In September last year, when the Indian government allowed foreign direct investment (FDI) up to a level of 51% in multi-brand retail, it was expected that global players like Walmart, Tesco and Carrefour would move quickly. But the government has not received a single application until now. Onerous conditions and lack of clarity in the policy have been a big damper.

Key conditions in the initial policy guidelines include a minimum investment of US$100 million, of which 50% needs to be in back-end infrastructure; 30% of products must be sourced from small enterprises; and retail outlets can be set up only in cities with a population of over one million.

“We are waiting for greater clarity,” Tesco’s chief executive Philip Clarke told the media a few weeks ago after a meeting with the federal commerce and industry minister.

But recent clarifications from the department of industrial policy and promotion (DIPP) may only slow down the process further. The US$100 million investment requirement is a case in point. The government has now said that acquisition of existing retail stores will not be considered part of this mandatory investment. Global retailers will have to set up new front-end operations. The US$50 million mandated for back-end operations also has to be in creating greenfield infrastructure. The 30% products sourced from small industries cannot be used for global business, and fresh products do not fall under the ambit of the 30% sourcing. There are additional qualifying clauses, too.

“The spirit of the government announcement seems to be that there is no easy way to invest in retail in India. It is now clear that foreign players will have to create capacities from scratch. This means that they will need to go back to the drawing board, assess their appetite for investment and rethink their strategies,” says Ankur Bisen, vice president – retail, at New Delhi-based research and consultancy firm Technopak Advisors. Bisen feels that the new set of clarifications has “added more rigidity and disincentives and will result in further delay in investment decisions.”

Entrepreneur Meena Ganesh sees the clarifications as a “mixed bag.” Ganesh, who was earlier heading Tesco’s operations in India, says: “On the positive side, it is good to see the government clarifying key aspects and [removing] ambiguities …. It is also great to see that the government realizes and understands the need to create a strong back-end and supply chain network. On the negative side, this is disappointing since more restrictions and more rules will delay and dampen the interest of foreign firms. K. Ganesh, serial entrepreneur with strong experience in starting businesses in India, adds: “Not allowing the M&A route defeats logic, especially given the bureaucracy and startup hurdles in India. The make-or-buy decision or organic-versus-inorganic decision, especially in early stages, is a commercial one.”

Consider Walmart. It entered India in 2007 in a wholesale cash-and-carry format in partnership with Bharti Enterprises. Wal-Mart expected that once FDI in multi-brand retail was allowed, this relationship would enable it to get a head start over other international retailers looking to establish a presence in India.

But Walmart has been embroiled in a series of controversies in the country. These include charges of violations of the Foreign Exchange Management Act and FDI regulations, and lobbying for FDI in multi-brand retail. (In India, lobbying is an illegal activity.) While the probe against lobbying has apparently been closed for lack of conclusive evidence, the company is still under scrutiny on other fronts.

In 2010 — prior to the opening up of FDI in multi-brand retail — Walmart made investments in Cedar Support Service, the holding company of Bharti Retail which has over 200 Easy Day stores in the country. A recent Walmart India statement regarding this says: “We are in compliance with India’s FDI guidelines. All procedures and processes have been duly followed and details filed with relevant Indian government authorities, including the Reserve Bank of India.” Responding to a query by India Knowledge@Wharton on Walmart’s investment in Cedar, a Bharti Group spokesperson said: “We are in complete compliance of all regulations and will continue to do so.” 

Walmart’s investments in Cedar in 2010 were by way of compulsory convertible debentures (CCDs). According to media reports, Walmart is now looking to convert the CCDs into equity and thereby get a 49% stake in Cedar. But, with the government mandating that all front-end investments have to be in greenfield ventures, Walmart may well have to rethink this move.

The company has another issue to worry about. Currently, the Bharti Walmart cash-and-carry stores reportedly sell 85% of their products to Bharti Retail’s Easy Day stores. According to DIPP clarifications, Bharti Walmart will have to restrict its sales to Easy Day to 25% of its turnover. Or, it will need to reorganize its corporate structure. “I don’t see the logic in this. A lot more clarity is required on this front,” says Bisen.

In a conversation with India Knowledge@Wharton in September 2011, Raj Jain, president of Walmart India and managing director and CEO of Bharti Walmart had said, “If FDI does not open in the next three years or so, then that may require a rethink on the whole strategy, because … you can’t monetize all your investments just on cash-and-carry.” Now, Walmart’s rethink on strategy may have to come thanks to the fine print in India’s FDI policy.

Indian retail chains that were looking to dilute their stake to the multinationals will also need to go back to the drawing board. “They will now find it difficult to attract foreign retailers. This will be a big jolt to them.” says Bisen. Adds Ganesh: “This seems to favor the very large industrial houses … as they can fund their ventures all the way through to an IPO. It will give them a competitive advantage as it will restrict the number of players. Any such scenario is not good for free markets and the consumer.”

S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore (IIMB), offers another perspective. Pointing out that India is “a unique market with a large chunk of retailing happening in the unorganized sector across several categories,” Kumar says: “With modern retail registering considerable growth in recent times, the government’s clarification [on FDI in multi-brand retail] is perhaps a relief for the unorganized market.”

According to Kumar, without the stringent clarifications announced by the government, multi-brand FDI retailers might have brought “several value-based offerings at the lower end of the market.” He suggests that “while consumer groups may benefit out of these offerings, the unorganized sector, both retailers and local brands … would be significantly affected.” Kumar adds: “The condition regarding the creation of back-end infrastructure by the multi-brand [global retailers] can contribute to the professional and gradual development of suppliers. Since this would be gradual, the unorganized sector, too, will have time to adapt.”

Although the U.S. public expects quick and massive government response to natural and man-made health disasters — including flu pandemics, hurricanes, tornadoes, terror attacks and mass shootings — federal and state legislative budget cutters have quietly eliminated 45,000 public health jobs during the last several years, according to Nicole Lurie, assistant secretary for preparedness and response at the Department of Health and Human Services. 

That fact and its implications were among points Lurie emphasized in a video interview at the University of Pennsylvania, one of several such videos and podcasts being produced by the Leonard Davis Institute of Health Economics and the Robert Wood Johnson Foundation Clinical Scholars Program. In a discussion with Robert Wood Johnson clinical scholar Chileshe Nkonde-Price, Lurie noted that she has “a lot of anxiety about how we might go into a potential flu pandemic with 45,000 fewer people on the ground than we had with H1N1.” 

As chief of the federal office responsible for orchestrating the country’s overall prevention of, response to and recovery from health-related emergencies, Lurie says one of her daily worries is that we too often take the public health emergency response infrastructure for granted. 

“During an event like we recently saw in the Boston bombing, there were bystander responders, EMS, the emergency trauma care system, the public health system and the mental health system all working together,” she said. “But that doesn’t come from thin air. It has to be an in-place and robust day-to-day system that is adequately rehearsed and practiced. If you can’t do it every day, you can’t do it on game day — but that doesn’t happen without money.” 

During the interview, Lurie and Nkonde-Price looked back on an extraordinary confluence of events during the third week of April. Those seven days included the Boston bombing, an explosion at a west Texas fertilizer plant and the bioterrorism scare sparked by the arrival of ricin-laced letters in a Washington, D.C., mail facility that services top federal offices. 

Simultaneously, Lurie’s office was grappling with a potential pandemic of the new H7N9 bird flu that emerged in China and was still heavily involved in assessing the mental health impact of mass casualty events like the Sandy Hook school massacre and the devastation wrought by Hurricane Sandy across the Eastern half of the continent. 

Her overall assessment of all these emergency response efforts was that “we did a lot better than we would have done a decade ago.” She added, however, that “Boston is a medically well-endowed community, and they handled this very well. But what if it were 10 times as many people? How would we have done? I don’t know.” 

As for Hurricane Sandy, “It wasn’t something that people were as prepared for as they might have been,” Lurie said. “And because the population density was so high, you saw all kinds of things that caught people off guard. There were high-rise buildings that were out of power for weeks with medically frail people in them [and] people who had to go to mass shelters…. Had this been on a larger scale, how would we have done? If there had been simultaneous events, how would we have done?” 

That’s why community resilience-building and public health preparedness activities are the “between times” way of “keeping those things going,” she said, adding that such things can’t be done without adequate personnel and budgets. 

Lurie, whose office in the last two years has sponsored national contests for the development of Twitter and Facebook apps that can mine real-time health-related data, spoke about how that process is becoming an increasingly useful part of federal preparedness and emergency response efforts. She pointed out that one of the most important tasks during a mass casualty emergency is understanding the level and nature of community fears and addressing them as fast as possible. 

“On the Friday after the Boston bombing — the day the city was locked down and the manhunt was going on — we were monitoring social media to understand people’s concerns,” she said. “It was interesting to see that the levels of fear and anxiety on Friday exceeded the levels of fear and anxiety we saw throughout the rest of that terrible week, including even the day of the bombing. It wasn’t that anyone was getting hurt on Friday, but lots of people were very concerned — and we had to find ways to adjust our messaging to address those fears and help the community stay calm.” 

The HHS preparedness chief noted that her office would like to see more research on ways to enhance a real-time sense of what is happening on the ground in a major emergency. “That could be analyzing electronic health care records from the National Disaster Medical System that would enable us to pivot our response more quickly,” she said, “or using Centers for Medicare & Medicaid claims during and immediately after an event to get a handle on what’s going on and whether or not a community is overwhelmed.” 

Another area of relevant research involves a more exact definition of what makes a community “resilient” during and after major emergency events. “We would like a better system for knowing how the community’s health care system is doing — is it overwhelmed or likely to become so?” she asked. “How would we know in real time? What does ‘resilience’ mean, and how to we build it? What are the factors that predict post-event recovery, and how can we position communities before and after an event to recover faster? What is the role of social media? How do you sort out signal from noise? And how do we foster a broader culture of bystander response in emergencies?” she asked, noting that bystander responders leaped to action and saved many lives in the initial minutes after the Boston blast. 

“How do we get our less resilient and more vulnerable communities engaged in this?” Lurie asked. “Think of families where the only English speaker is a child. How do we think about children as assets rather than always as helpless victims?” 

Lurie urged academic clinical scholars to get involved in emergency event response and sign up with the National Disaster Medical System. She suggested that becoming involved and identifying areas of potential research posed a series of intellectually interesting puzzles. 

“If you wanted to do research related to a mass casualty event response, what would you need to do beforehand?” she asked. “How would you be poised and ready to go? How would you have a research network worked out if you don’t know where in the country the next ‘event’ is going to happen?”

When the U.S. Department of Justice announced last month that it had reached a settlement with Ranbaxy Laboratories, there was relief at the New Delhi headquarters of India’s largest pharmaceutical company. Ranbaxy’s U.S. subsidiary — Ranbaxy USA, Inc. — agreed to plead guilty to violations of the Federal Food, Drug and Cosmetic Act. These related to “the manufacture and distribution of certain adulterated drugs made at two of Ranbaxy’s manufacturing facilities in India.” Ranbaxy agreed to pay a criminal fine and forfeiture totaling US$150 million and to settle civil claims for US$350 million. The US$500 million fine is the largest drug safety settlement to date with a generic drug manufacturer. “The announcement marks the resolution of this past issue,” said Arun Sawhney, Ranbaxy CEO and managing director.

He spoke too soon. The problems in the U.S. may have been settled, but the headaches have begun at home. There is suspicion now that the Indian authorities have been too lax. If spurious drugs could be exported, couldn’t they have found their way into the domestic market also? Taking no chances, one of Mumbai’s leading hospitals — Jaslok — stopped the use of Ranbaxy drugs at the end of May. On June 6, Apollo Hospitals, one of Asia’s largest hospital chains, issued an advisory against Ranbaxy drugs and temporarily suspended their sale.

A public interest litigation (PIL) has been filed in the Supreme Court and will be heard this week. According to the PIL, “making and selling adulterated drugs is a heinous crime and amounts to committing murder, and a person who knowingly does it is liable to be prosecuted under the Indian Penal Code.” The petitioner has also sought action against the Central Drug Standard Control Organization — the government watchdog — for permitting Ranbaxy to sell spurious drugs in India.

Muddying the waters further is a skirmish that has broken out between Daiichi Sankyo, which now controls Ranbaxy, and Ranbaxy’s original promoter family. In 2008, the Singhs of Ranbaxy — Malvinder and Shivinder — sold their 34.8% holding in the company to the Japanese pharma major for US$2.4 billion. Ranbaxy’s problems with the U.S. authorities have been going on for several years now; however, Daiichi Sankyo claims it wasn’t aware of all the facts when the deal went through. Says a statement posted on the company’s website: “Daiichi Sankyo believes that certain former shareholders of Ranbaxy concealed and misrepresented critical information concerning the U.S. DoJ (Department of Justice) and FDA (Food and Drug Administration) investigations. Daiichi Sankyo is currently pursuing its available legal remedies.”

“This is an obvious reference to the members and companies of the Singh family who were shareholders of Ranbaxy,” stated Malvinder Singh. “Daiichi Sankyo went into the deal after satisfying itself with its due diligence, with knowledge of the U.S. DOJ and FDA investigations and with the benefit of legal advice.”

In an interview to fortnightly business magazine Business Today, Singh was highly critical of the Japanese company. “Ranbaxy was not a lemon,” he said. “It was not only the crown jewel of the Indian pharma industry but, as a company, it was India’s global face. My expectation was that Daiichi Sankyo would build upon it. But they have mismanaged it.”

Meanwhile, Singh has other things to worry about. He was planning to apply for a banking license through group company Religare. Says economic daily Business Standard: “The promoters of Religare Enterprises will face an uphill task in satisfying the ‘fit and proper’ criteria prescribed by the Reserve Bank of India for new bank license applications, due to the various troubles of Ranbaxy.”

E-commerce in India is in its infancy, but the influence that the Internet has on consumer buying decisions through online activities like product research and price comparison is significant. According to a recent report by Boston Consulting Group (BCG), titled “From Buzz to Bucks: Capitalizing on India’s Digitally Influenced Consumers,” while the size of e-commerce in India is around US$6 billion, “digitally influenced” purchases are five times more and account for US$30 billion. By 2016, this digital impact is expected to increase five-fold to US$150 billion.

Arvind Subramanian, partner and director at BCG and co-author of the report, notes that this lead and lag effect, where e-commerce gets preceded by digital influence, is not uncommon in other markets. “But unlike other markets, in India, because of its unique characteristics like challenges around online payment and logistics, and a high prevalence of Internet access only through mobile handsets, the growth of e-commerce will be much slower relative to digital influence.”

Take mobile Internet. The total number of Internet users in India is expected to increase from 125 million in 2011 to 330 million by 2016. At present, around 45% of online consumers use only mobile technology to access the Internet. As Internet penetration grows, this is expected to increase to 60%. “E-commerce sites and digital media companies find it hard to create a revenue model for mobile-only Internet usage. This is not an insurmountable problem, but solutions will take time to take root and [to] scale. In the interim, digital influence will continue to be significantly larger than e-commerce,” notes Subramanian.

The BCG report also points out that consumers who use the Internet to decide on their purchases spend more than their less-connected peers. It notes: “For instance, digitally-influenced consumers are only 16% of mobile phone buyers, but they account for 24% of spending in that category, buying products that, on average, are 46% more expensive.”

So what does this mean for companies looking to capture a share of the consumer’s wallet? According to Subramanian, this “headroom between digital influence and e-commerce” in India presents a “huge opportunity for traditional consumer firms…. Old economy firms can take advantage of the mismatch between customer needs and lack of an e-commerce supportive ecosystem. Since the actual sales get concluded in brick-and-mortar stores, this is a great opportunity for these companies to strengthen their online presence and use digital media to influence customer decisions. For online retail firms, on the other hand, if a sale does not happen online, they do not make money.”

Subramanian suggests that the importance of digital influence in India has implications for international e-commerce firms, too. According to Indian regulations, FDI is not permitted in single brand as well as multi-brand e-commerce. “But international players can come up with new models where they can monetize the digital influence without necessarily having to conclude it in a transaction. For instance, they can create shopping websites which can generate leads which can then be passed on to the manufacturers,” he says.

According to Nimisha Jain, a BCG principal and co-author of the report: “The fact that air travel, a category with highest digital intensity, has a DII [digital intensity index: the extent to which buyers use the Internet across the purchase cycle] of only 20.6 out of 100 shows how much opportunity still exists for companies to engage Indian consumers online — and to influence their buying decisions.” Adds Subramanian: “It is important for companies to recognize the need to offer their customers a seamless experience across all touch points.”