Are new FDI norms for better or worse?

The recent FDI policy has caused furor among the big players in the retail segment who have already floated JVs with international wholesalers or who are mulling over such a plan.

Department of Industrial Policy and Promotion (DIPP) in the Ministry of Commerce and Industry on March 31 came up with a new policy on Foreign Direct Investment (FDI)). This new twist and turn of the policy put most of the major business houses in a sticky situation.  The recent guideline has stated that the FDI in wholesale retail does not permit cash & carry retailers to exceed sales more than 25 per cent of its turnover to its partner retailer. This is for the first time that the industrial ministry has come up with such guidelines for wholesale trade, otherwise known as cash & carry trade. Cash & carry companies are asked to maintain daily sales records which will include registration or licence details of buyers.

Does the policy pull back foreign investors?

India’s retail sector has been creating its own niche quite successfully, and considering its growth and stability in economy, it has become the cynosure for foreign eyes. With many foreign players making investment and inroads into the market, the new cap on FDI has triggered a lot of reactions, uncertainty and clamour in the retail industry. The tie-ups between Bharti-Retail and Wal Mart, Tesco and Woolworth’s joint venture with big retailers Trent and Infinity Retail respectively have received a jolt after the government’s ruling. So long these tie-ups have ensured majority of the cash & carry sales to the big retail chains, which now comes to a halt with the new FDI policy. It poses a big threat to the participation of international wholesale retailers in the country’s retail development. There is a fear that initial enthusiasm might fade in spite of 100 per cent FDI permission in wholesale trading. 

The reaction in the industry

Bharti Wal-Mart and Metro Cash & Carry are among leading firms involved in wholesale trade in India. India’s big business houses are at crossroads with the current norms, seeking more clarity on the matter. It has compelled them to stall or put on hold with their plans which could have bearing on their businesses. India’s largest retailer, Kishore Biyani, has a plan to forge an alliance with wholesale trading company, Carrefour. But, as the situation demands, he is considering a major modification of the plan,  for the venture seems to be a far cry to hope for a bright future. The spokesperson for Pantaloons Retail, promoted by Kishore Biyani, declined to comment on this government policy. “We are in the process of reviewing and understanding the new consolidated guidelines”, comments the spokesperson for Bharti Retail.

What will be the consequence?

Justifying the government’s role in drafting this new policy, a government official comments that this is an attempt to stop foreign traders from grabbing a huge share of front-end retail pie, in the name of wholesale trading. However, apprehension and confusion have gripped the wholesale trading fraternity. They are in the midst of understanding the whole process. Time will tell if it is a dampener or facilitator of retail growth.