No change in FDI policy: Foreign retailers told to work out India rollout under existing rules

 

NEW DELHI: The government does not plan to liberalise foreign direct investment (FDI) norms in the retail sector, said a senior government official, ruling out any change in policy in the near future and dashing hopes of global retail chains such as Walmart and Carrefour.
Senior executives and representatives of these companies met government officials in New Delhi this week to lobby for concessions. These included relaxing the local sourcing conditions, making investment in real estate part of the mandatory $50-million investment that foreign retail companies have to make in back-end infrastructure, as well as lowering the minimum investment figure itself.

A top industry ministry official, however, said these demands have not been accepted. "We have told them all these should have been discussed before the policy was finalised and before it was announced in September. There is no scope to reconsider any of these at the moment," the official said on condition of anonymity.

A representative of a foreign retail company who attended one of these meetings confirmed that the government appeared to be in no mood to tinker with the policy any more. "We have been told categorically that we should prepare our India rollout under the existing rules," he said.

FDI proposal yet to come by

But, we have asked them to at least clarify what can be considered as back-end infrastructure and if investments in real estate would be considered as part of mandatory investment," he said.

Carrefour's spokesperson declined comment on the matter. A spokeswoman for Walmart did not comment specifically on the meetings, but said the company looked forward to working with the government to understand the existing FDI rules and was committed to following them.

Government officials have also conveyed to foreign retail companies that it would be incumbent upon them to obtain necessary licences from states that have agreed to allow foreign investment in retail. It has also urged them to lobby with Opposition-ruled states that have banned foreign retailers from operating stores.

The government had despite tremendous political Opposition allowed foreign supermarkets to enter the country in September 2012. But six months have passed and it is yet to receive a single proposal from any retail MNC.

Political uncertainty and the fact that almost two dozen of India's 35 states and Union territories have banned their entry have forced foreign retailers to tread cautiously. But the imposition of stiff entry conditions has also made them wary.

The chief executives of Walmart and Tesco had met Commerce and Industry Anand Sharma at Davos in January to express their reservations on conditions such as mandatory 30% local sourcing from small companies and $100-million up-front investment, with 50% of the capital going into back-end infrastructure within three years, among others. Many executives at foreign multi-brand retail companies were hopeful that the government would dilute the conditions just as they had done for single-brand retailers, smoothening the way for Swedish furniture giant IKEA's entry.

For the time being, the government does not appear to be amenable. But it has made attracting foreign investment a top priority and is even considering the option of abolishing foreign investment caps across all sectors. Retail companies will, therefore, hope the government will climb down from its present position.



Ravi Kumar

pgdm
2nd sem