Retailing Romp: FinMin Mulling New Definition

New Delhi, Nov 6: | Updated: Nov 7 2003, 05:30am hrs
The finance ministry (FinMin) has said that the present ban on retail trading is far too open ended. FinMins Foreign Investment Promotion Board (FIPB) unit wants to restrict the definition of retail as far as possible to consumer goods. Addressing the strict no-no governing foreign direct investment (FDI) in the retail sector the agency has said that the definition of consumer goods should be those products which are sold to customers through retail shops, show rooms etc.

In a confidential note to the core group, the FinMin agency has said the concept of retail trading becomes meaningless in categories of high tech equipment, capital goods, heavy machinery, specialised hospital equipment, etc. The agency has asked the ministry of commerce and industry to carefully go through the industrial classification of goods to find out what categories of goods should be excluded from the distinction of retail trading.

The concept of retail trading as presently applied is far too open ended and even covers categories of goods in which a distinction between retail and wholesale is simply not tenable, the FinMin agency has said.

The new thinking has an indirect fallout in the controversial Metro AG case in Bangalore. The German retail giant is the worlds third largest player in its area. The FIPB gave it an approval in December 2000 to establish a wholly-owned subsidiary to undertake cash-and-carry wholesale trade. This allowed Metro to establish state-of-the-art complexes for food and non-food products at urban locations in India, but excluded it from the retail segment. Besides, Metro was prohibited from undertaking deliveries at the customers doorstep. The FIPBs approval was subject to the condition that the company would need to ensure that the selling of the products was to retailers who would possess sales tax registration and not to consumers.

As things stand, Metro has gone ahead and broken new ground in selling its products. One such method is to sign up deals with large companies and offer rock-bottom rates to each companys employees. Purchases are invoiced centrally under the companys name. Consumers love it. But rivals dont.

Under pressure from India retail chains, apex chambers have confidentially complained to the government that Metros operation will culminate in the effective circumvention of the current ban on FDI in retail.

Metro has approval to cater solely to all small retailers and semi wholesalers who hitherto were dependent largely on the wholesale market for their purchases. However, they are effectively targeting not only small retailers and semi-wholesalers but also small offices, restaurants, caterers, hotels, institutions and other small businesses, a petition sent to the government has said.

These customers are currently catered to by small contractors, who employ thousands of people and for whom this is the only means of livelihood, the petition added.

The predatory pricing and global scale of Metro poses real danger to the livelihood of these small players.

Besides fresh ideas in the definition of retail, FinMins FIPB unit has observed that non-fulfilment of test marketing obligation does not make a company ineligible for other approvals. The very concept of test marketing implies that it may not succeed. In the event of failure, obviously the question of setting up manufacturing facility would not arise, the agency has said.