Global retail giant
Walmart has informed the government that the mandatory requirement for procuring 30 per cent products from small industries stipulated for foreign direct investment (FDI) in
multi-brand retail does not fit into its business model and the limit should be scaled down to 20 per cent.
A senior official of the Department of Industrial Policy and Pro-motion (DIPP) confirmed to Mail Today that Walmart had submitted a letter earlier this month with "this calculation".
According to sources, while it would be difficult to reduce the 30-per cent norm for local procurement due to political reasons, the government is likely to widen the definition of small industries to make it easier for foreign retailers to source a broader range of local goods.
Besides Walmart, other global retail chains like Tesco, Car-refour and Ikea have also expressed reservations over the stringent entry norms.
Currently, small industry, for the purpose of 30 per cent local sourcing, has been defined to include units with investment in plant and machinery of less than $1 million. This ceiling is likely to be raised to $2 million for these units to allow for their expan-sion after foreign retailers start purchasing goods from them.
The issue had been raised by Swedish retail chain Ikea, which said that it is already sourcing goods from India and if it contin-ues to purchase more from the existing vendor, the scale would exceed the small industry criterion of $1 million. The government has also decided to include goods bought from agricultural cooperatives and farmer cooper-atives like Amul, Verka and Parag in the 30 per cent compul-sory local sourcing requirement.
Another controversial provision is that foreign retailers must invest, at least, 50 per cent of their outlay in back-end infrastructure. The government plans to partially relax this provision by confining the back-end investment require-ment only to the initial $100 mil-lion invested by foreign companies. Subsequent investment is likely to be exempted from the norm. However, companies like Walmart have already invested in backend infrastructure through their cash-and-carry operations and want this to be considered towards meeting the norm so that they do not have to make any fresh investment on this account.
The Walmart India spokes-woman said, "We are still very early in the process on FDI but are excited by the opportunity in front of us. We continue to work with the government to better understand the rules that exist for FDI."
Courtesy: Mail Today
Special 
