Govt-retailer meet on FDI a wholesale flop

Written by fe Bureau | Updated: Jun 28 2013, 09:16am hrs
BIG-TICKET foreign investment in multi-brand retail could take its time coming into the country with global retailers as yet unclear about the governments policy. Indeed, Thursdays meeting between Anand Sharma, minister for commerce and industry and stakeholders in the retail space, failed to yield any concrete decisions or provide any clarity on key issues relating to back-end infrastructure and sourcing from the micro, small and medium enterprises (MSME) sector. Although most issues came up at the meeting, the government offered no clarifications.

The government, which threw open the multi-brand retail space to foreign direct investment (FDI) in September, 2012, is yet to receive a single application. Foreign retailers are allowed to hold up to 51% of the equity in a multi-brand retail venture. Quite a few questions were raised and a number of clarifications were sought by the retailers, commerce and industry minister Anand Sharma said after the meeting, adding the government would give more clarifications where needed. This is an ongoing dialogue between the government and the industry and we want to facilitate foreign investment in the sector, Sharma said.

Retailers came away from the meeting not expecting any early decision. I think clarity will take some more time to come, Rajan Bharti Mittal, VC and MD, Bharti Enterprises said after the meeting. A representative of Tesco said the meeting was positive but a Carrefour spokesperson said clarity was needed on many issues.

The meeting was attended by representatives from Tesco, Carrefour, Bharti Enterprises, Aditya Birla Group,Tatas, Reliance Industries, Metro Cash & Carry and Landmark Group among others. Walmart Asia president and CEO, Scott Price, had a separate meeting with the minister in the morning.

Mittal said a request had been made to relax the sourcing clause; retailers want the 30% sourcing norm from small and medium enterprises made preferable as it is in the case of single-brand retail and not mandatory. Theres also an issue with the definition of SME since the enterprise could outgrow the $1 million investment threshold. So, we need some relaxation, he added. Bharti Enterprises has a tie-up with the worlds largest retailer Walmart in the wholesale cash and carry segment.

Retailers also suggested that the 50% mandatory investment in back-end infrastructure by foreign retailers be enforced only for the first tranche of investment. The minimum mandated investment is $100 million.

The world over, investment in back-end infrastructure is need-based and it should be the same way here, said the representative of a global retailer. Other retailers who spoke to FE said they would prefer if the government allowed the 50% investment in back-end infrastructure to be greenfield for only the first tranche of the investment. They should allow the rest of the investment in the back-end infrastructure to be brownfield,said the representative of foreign retailer.

Two global retailers are understood to have queried the minister on the stability of the FDI policy in the light of the forthcoming general elections. Sharma, however, pointed out that the policy was a sovereign decision ratified by Parliament. Several consultants who attended the meeting said political uncertainty had stymied foreign investment in the sector.

The department of industrial policy and promotion (DIPP) also issued a four-page long list of clarifications on the multi-brand retail FDI policy. However, retailers are yet unsure whether the mandatory investment in back-end infrastructure refers to 50% of the first tranche of the investment or the cumulative investment.