Source: The Economic Times, Feb 20, 2017
NEW DELHI: The government is considering a proposal to free up foreign direct investment (FDI) policy on retail but only for domestically manufactured goods.
The policy under consideration applies to both offline and online retail and would remove restrictions on companies such as Walmart, Tesco, Amazon and others when it comes to the sale of things produced in the country. Apart from attracting investment in retail, such a policy would also give a big boost to the Make in India programme, a senior official told ET.
“It has been proposed that FDI restrictions in retail be lifted to the extent of goods manufactured in India,” he said. “The matter will be deliberated by the government in the near future.”
The government is expected to take a decision after the Uttar Pradesh assembly elections. Overseas-owned online retailers can only function as marketplaces, or platforms for buyers and vendors, and aren’t to sell goods on their own account through an inventory model. Multibrand retailers such as Walmart can only own up to 51% of Indian ventures and are subject to other constraints as well.
The current policy allows domestic manufacturers to sell just their own goods through any channel — online or offline. Only in the case of food products can locally processed items be sold by anyone through any mode, a policy change made in August last year to give a boost to food processing.
Retailers have been lobbying for similar exceptions to be made for grocery and personal care items as well. They say confining such stores to food product doesn’t make business sense.
Finance minister Arun Jaitley said in his February 1 budget speech that the government is considering further liberalising the FDI policy. More than 90% of FDI is currently through the automatic approval route.
Amazon recently submitted a proposal to the government for setting up brick-and-mortar stores to sell locally made food products alongside its online platform in India. In an earlier proposal, the online retailer had pushed for a hybrid model under which it could sell its own products as well as those of independent sellers. This was turned down as it didn’t support the Make in India strategy.Easing restrictions will benefit producers, experts said. “It is in the interest of the Indian economy to relax these rules for retailers just like they did for manufacturers,” said Devraj Singh, executive director, EY. “Jobs will not be affected and overall manufacturing will get a boost.”
The government wants to bolster manufacturing as part of its job-creation strategy. Manufacturing has lagged behind services in total FDI.
India’s retail sector has been gradually opened over the years but with multiple conditions such as local sourcing rules amid strong resistance over fears that smaller, family-run stores would be hit.