The cap of 25% on sales to group companies likely to be removed
The draft of the revised foreign direct investment (FDI) policy has proposed easier norms for cash & carry and wholesale trading companies with foreign partners.
The policy will be implemented from April 1.
The present policy allows 100 per cent FDI in cash & carry and wholesale trading under the automatic route, but subject to a key restriction — the company cannot sell products worth more than 25 per cent of its turnover to group companies.
The government now wants to delete this restriction, which has come under fire from both foreign retailers and their Indian partners for restricting growth.
This will give relief to leading foreign cash & carry companies whose Indian partners run separate retail chains. The companies will be able to supply freely to retail stores owned by their partners.
Those that stand to benefit are Bharti-Walmart, Tatas’ joint venture with Tesco, and French retailer Carrefour, which have either set up cash & carry companies in the country or are in the process of doing so.
| FDI POLICY IN TRADING AND RETAIL | ||
| FDI cap | Entry route | |
| Cash & carry and wholesale trading | 100% | Automatic |
| Trading of items sourced from medium- and small-scale units | 100% | Government |
| Single-brand retail | 51% | Government |
| Multi-brand retail | — | Banned |
Many of them have been openly opposing the restriction.
For instance, Bharti-Walmart, a 50-50 joint venture, has set up a few wholesale cash & carry outlets which sell to institutions and hotels, among others, but not to retail consumers. Bharti also runs a retail chain under the name of Bharti Easy Day, which sells to retail consumers.
UK’s Tesco has tied up with Tata group retail venture, Trent, for a cash & carry business. Trent runs hypermarket stores which directly sell to consumers. French retailer Carrefour has also announced a plan to set up its first cash & carry outlet in the country.
The restriction was imposed due to fear that the big retailers might use the wholesale cash & carry route to make a back-door entry into multi-brand retail, where FDI is now allowed. It was feared that the Indian partners in cash & carry operations would use the wholesale route to bring products of different brands into the country for sale at their outlets, bypassing the ban on FDI in multi-brand retail.
However, a debate has been raging in the country on allowing FDI in multi-brand retail. While many key ministries such as commerce and consumer affairs, and even the Planning Commission, have supported the move, the finance ministry is not fully convinced. It has sought a more detailed discussion on the possible adverse impact on small retailers.
The government had came out with a consolidated FDI policy in October last year. It had announced that the policy would be reviewed every six months. The revised guidelines are due on April 1.
