Multi-brand FDI: Wal-Mart wants change in norms

 It appears that multi-brand retail segment is unhappy with conditions laid down by the United Progressive Alliance (UPA) government to set up shop in India.

Wal-Mart, world’s largest retailer, has expressed its inability to accept the sourcing norm in the multi-brand segment that requires 30 per cent procurement from small industries. The retailer has stated that it can procure only about 20 per cent.

The global giant, keen to set up its retail shops in the country, said it was incapable of sourcing 30 per cent of its goods from small Indian suppliers, one of the requirements for multinationals to set up shop under majority-controlled joint ventures in India.

Representatives of Wal-Mart, who met officials of Department of Industrial Policy and Promotion (DIPP) last week,  reportedly said the current norms of sourcing would be difficult to meet. Ever since the UPA government permitted 51 per cent foreign direct investment (FDI) in multi-brand retail about 10 months ago with some stringent norms, several global retailers have raised their concerns over the sourcing restriction.

However, the government rejected their demand stating that it would not be in a position to ease the norms as “it is a politically sensitive issue".

Though several global giants are keen to invest in retail sectors, so far no formal proposal has been received by the DIPP yet. 

When contacted, Wal-Mart India spokeswoman said: "We are still very early in the process on FDI but are excited by the opportunity in front of us. We continue to work with the government to better understand the rules that exist for FDI and we appreciate the government’s willingness to consider our requests for clarity on conditions contained in the new FDI policy.”

According to the FDI policy for multi-brand retail trading, at least 30 per cent of the value of procurement of manufactured/processed products shall be sourced from Indian “small industries.”

However, earlier several meetings with Commerce and Industry Minister Anand Sharma, global chains have flagged the issue and sought to alter the condition to “preferably” from “mandatory” as in the case of single brand retail.

Even the Parliamentary Standing Committee on Industries on Tuesday recommended the Centre to set up a regulatory mechanism to protect the interests of small scale industries, farmers, consumers and small retailers.

However, the Congress ruled out any “change” in the FDI policy to suit any particular company. “If Wal-Mart has gone, more marts are there. They will come. We are not going to change our policy. Our policy is a national policy. We are for national benefit,” party spokesperson Raj Babbar told reporters.

The UPA government in September 2012 allowed foreign retailers to own 51 per cent stake in the multi-brand retail sector, paving the way for global groups such as Walmart, Carrefour and Tesco to open supermarkets in India.

The government hoped to get huge flow of foreign funds for retail sector and also expected that investment by them in processing technology would help India’s agriculture sector.
While big retailers can directly approach farmers to get produce by ensuring highest payment to then, it will also end the menace of middlemen.

While allowing 51 per cent FDI in retail, the government imposed several conditions:
The government has decided put a ceiling of 51 per cent in multi-brand retail 100 per cent in single-brand retail.

At least 30 per cent of the value of manufactured items procured should be sourced from Indian small and medium enterprises. At least half of the FDI should be made in back-end infrastructure such as cold-chain and warehousing. The minimum FDI in any multi-brand retail project should be $100 million. State governments can prohibit FDI in retail in their states if they wish to and stores can be set up only in cities with a population of at least one million.