Plan panel against further easing of retail FDI norms

The government’s proposal to further tweak foreign direct investment (FDI) norms in retail sector to attract foreign investors has drawn flak from the Planning Commission, which said the move will weaken domestic small industries while damaging job opportunities for local people.

The commission has argued that the lukewarm response to the relaxations in rules, on the other hand, will enhance the bargaining power of the overseas investors, who will wait for more diluted norms before investing in the country.

“Diluting policies after being embarrassed that one year down the line there is no investment, so relaxing the policies further. This attempt to please foreign investors will make them stronger and they will wait and watch for more relaxed norms. But, it will damage our own small-scale industries and farmers,” a senior Planning Commission official told Deccan Herald.

The government is considering tweaking FDI norms in retail sector to allow global chains like Walmart, Carrefour and Tesco to open multi-brand stores in cities with population less than one million and also relaxing mandatory investment norms in the back-end infrastructure and sourcing conditions. “If I am relaxing my back-end, I am hampering my local procurement and damaging employment opportunities for our own people,” the official said.

He also attacked the government for lack of consultation with stakeholders before giving shape to policies. “If the stakeholders’ views were taken into consideration before making the retail FDI policy, then we would not have to bring about changes every now and then,” he said.

The government lifted curbs on FDI in multi-brand retail in September 2012, but 11 months down the line, no global retailer has moved so far to file applications with the Foreign Investment Promotion Board (FIPB), a key wing in the finance ministry that vets FDI proposals.

Even the enthusiastic retailers seemed to have backed away. For instance, Walmart, the world's largest retailer, is yet to enter India though it had indicated last September that it would start moving into India within 45 days.

Complex FDI rules, including stiff entry norms, have barred foreign investors from entering the lucrative Indian retail space. So far, only 11 states and union territories, out of 28 states, have agreed to allow foreign investors in multi-brand retail space.

In a meeting with Commerce and Industry Minister Anand Sharma last month, retailers had asked for relaxing the FDI norms in multi-brand segment and also demanded that sourcing rules must be made similar to that of single brand. Since then, the government has started looking into their demands afresh and promised to come out with more clarifications. As per the current policy, 30 per cent of products sold by single brand retailers, where 100 per FDI is allowed, are to be “preferably” sourced from small and medium enterprises (SMEs).