No further tinkering of FDI rules, Ministry tells Walmart

Amiti Sen New Delhi | Updated on March 12, 2018 Published on September 29, 2013

The DIPP is ready to accommodate the company’s request only if it falls within the existing policy framework.

Walmart’s attempts to press for further relaxation in the existing Foreign Direct Investment rules in India, especially those related to sourcing inputs locally, could meet with only limited success.

The Commerce & Industry Ministry has indicated to the company that it has little space to tinker with the existing rules as it cannot go for another policy amendment. While the policy allows 51 per cent FDI in multi-brand retail, it is subject to the condition of sourcing 30 per cent inputs from local small and medium industry.

“Whatever ease of rules that they (Walmart) want in their sourcing model has to happen within the existing policy framework. We have already changed the rules once and retail is a politically sensitive area,” a Department of Industrial Policy & Promotion official told Business Line.

So, if Walmart says that it will only be able to source 20 per cent of its goods from the domestic small & medium enterprises against the stipulated 30 per cent, it may not be allowed to do so as it would require a policy change.

On the other hand, if the retailer suggests alternatives such as sourcing the remaining 10 per cent through an agency or intermediary, it could be considered as the DIPP could examine whether there is a possibility of accommodating it within the existing rules framework, the official added.

“They (Walmart) have to be innovative. If they could show us how we could help them comply with the existing FDI provisions by altering its implementation without changing the policy, we would certainly consider it,” the official said. Walmart’s Asia CEO Scott Price met DIPP Secretary Saurabh Chandra recently to explain the problems that the company could face with the sourcing norms in India.

Walmart meeting

Last week, Walmart India’s CEO Ramnik Narsey met DIPP officials to share with them details of the company’s existing sourcing model in the country. The US retail major is already present in India as part of Bharti-Walmart, a 50:50 cash-and-carry joint venture with Bharti Enterprises, which generates annual revenues worth $500 million.

Interestingly, while it has already been a year since the country opened its doors to foreign multi-brand retailers, applications are yet to come in from global chains.

Recent measures

Recently, the Government relaxed a number of conditions in the FDI policy including back-end infrastructure investment norms, hoping to attract more investments.

In the area of local sourcing, while it continued with the rule of mandatory buying of 30 per cent inputs from small-scale suppliers, the definition of small sector was expanded to include units with total investment in plant and machinery up to $2 million instead of the earlier threshold of $1 million.

Foreign retailers have also been allowed to retain their vendors even when they outgrow the $2-million investment threshold.

Walmart has, since then, been pushing the Government for even more relaxations in the policy including bringing down the 30 per cent minimum sourcing limit to 20 per cent.


Published on September 29, 2013

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