Prime Minister Narendra Modi’s government is considering easing rules for foreign retailers if they agree to sell more locally produced goods, according to an official with knowledge of the matter. Global companies with a permit to sell local food items — Amazon.com Inc. is reported to have applied for a license — may also be allowed to market made-in-India non-food products such as toothpaste and towels worth about 25 percent of total sales, the official said, asking not to be identified citing rules on speaking to the media. India may also allow more foreign direct investment in multibrand retail if companies such as Wal-mart Stores Inc. and Carrefour SA agree to stock only local products.
While India already offers 100 percent foreign ownership in food and 51 percent in multibrand retail, there are few takers due to strict rules including those that require companies to put half their investment into warehouses and other back-end infrastructure. Retail is a sensitive subject in India, and tough opposition to slash rules comes from within Modi’s Bharatiya Janata Party because its traditional support base has been small traders.
This month’s broad, decisive win in state polls can embolden Modi to overlook some of this opposition as he struggles to create jobs before national elections in 2019. While India is dotted with mom-and-pop stores that employ local residents, these jobs aren’t well paying and don’t offer the insurance and leave benefits that typically accompany a formal employment contract.
The proposals can also help Modi’s flagship Make-in-India campaign to boost local manufacturing. While India attracted $324 billion foreign direct investment from 2000 through the end of 2016, the biggest share of $58 billion has gone to services and only about $14 billion has come into trading.
About 44 percent of India’s $620 billion retail market comprises food and grocery items, said Arvind Singhal, chairman at consultancy firm Technopak Advisors Pvt. While the sector has been growing by 12 percent each year, foreign companies are staying away because the government’s policies are too restrictive or confusing, he said.
India’s department of industrial policy and promotion is considering allowing 100 percent foreign direct investment in products which carry the Made-in-India label, the official said.
An external company handling media relations for Amazon didn’t immediately comment on a report that Amazon has sought a food retail license. JP Mattu, spokeswoman of the commerce and industry ministry, didn’t answer calls to her mobile phone on Friday.