US retail giant Walmart and French multinational retailer Carrefour have written to the Indian Government seeking clarity on certain rules guiding investments in multi-brand retail, including those related to compulsory sourcing of inputs from the small and medium enterprises (SMEs) and investing in back-end infrastructure.

The retailers are looking for written assurances on their concerns so that their Foreign Direct Investment (FDI) proposals get easy approvals once submitted for clearance, a DIPP official told Business Line .

The multi-brand retail segment was opened for foreign investors last September with the Government allowing up to 51 per cent FDI in the sector, but no proposals have come in yet as retailers want more clarity on several issues.

Budget announcements

“Some announcements have been made in the Budget by the Finance Minister and some comments made by the Commerce Minister recently that favour investors. However, these are not spelt out in the policy. The foreign retail companies have sought clarity on these and other issues,” the official said.

For instance, the Finance Minister announced in the Union Budget this year that SMEs will continue to get benefits outlined for them by the Government even after they graduate out of the category, up to a period of three years.

This would mean that the SMEs, which supply inputs to foreign retail companies to help meet the 30 per cent small sector sourcing criteria, could continue to do so for three years even after they grow and cease to qualify as small enterprises.

Although the FDI policy does not spell this out, the decision taken in the Union Budget can give a big boost to investor sentiments when implemented. One of the main worries of the foreign retailers is that their suppliers may grow in size and cease to be SMEs once they start supplying to them.

The companies also have simple queries such as whether they would be allowed to source from SMEs located in a different State although Sharma said recently that it should not be a problem. “Some queries may seem basic, but as the answer may not be evident in the policy, the companies want clarifications,” the official said.

While the UK-based retail chain Tesco has not sought written clarifications yet from the DIPP on its concerns, the company’s Chief Executive Officer Philipp Clark had asked Commerce and Industry Minister Anand Sharma, at a recent meeting, if sourcing from farmers would qualify as domestic sourcing.

Since the FDI policy is very clear that only manufactured items sourced by a foreign investor from SMEs would be counted towards fulfilling the 30 per cent sourcing criteria, Tesco is in for some disappointment.

There are also queries on investments in back-end infrastructure mandated under the policy such as whether expenditure on buildings would qualify as back-end and if existing infrastructure could be used by a foreign investor.

amiti.sen@thehindu.co.in

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