FIPB deflects Metro issue to ministry

Though it has been over a month since the Government of Karnataka sent it a report saying German retail giant Metro Cash & Carry was violating its licence conditions, the Foreign Investment Promotion Board (FIPB) has deferred a decision on the matter, and has pushed the ball into the industry ministry's court.

And it also refused to take a decision on granting approval for a change in name in Metro's foreign collaboration agreement (the parent company's name is now Metro Cash & Carry International GmbH) since 'the matter was sub judice'.

There is a writ petition in the Karnataka High Court on whether Metro should be allowed to do business in India as it was violating the foreign investment guidelines.

In its meeting on March 5 to examine the Karnataka government's report, the FIPB didn't take a decision since, as the minutes of the meeting read, "the FIPB Secretariat informed the Board that the communication dated 3-2-04 received from Government of Karnataka had been forwarded to the DIPP and D/o Commerce for further necessary action."

On February 3, the Karnataka government sent a report to the FIPB saying it had found Metro Cash & Carry India guilty of violating its licence conditions that expressedly prohibited it from 'selling goods to consumers and carrying on retail trade.' The government has also said that Metro's activities have led to a loss of resale tax revenue to the state.

While retailers in the state claim Metro is selling to individual customers at the retail level, the company has been arguing that it is also allowed to sell to the business-to-business segment (that is hotels, offices, doctors, etc) and while this may look like retail sales to individual customers, it is not actually so. According to the Karnataka report, Metro's license allows it to supply to distributors, wholesalers and retailers having valid licenses/sales tax registration.

But the report cites several instances of companies where 'the purchase of products by the dealers reveal that most of the products being purchased are for home consumption and end use and not for business to business purpose.'

'Thus is it clear', the report says, 'that the company has violated the original condition laid down in the Government of India's approval letter ... it has also violated the modified condition laid down in (the) subsequent letter dated 10.12.2002. This is because the company has not taken care to sell goods to those who are trading in similar goods, either in wholesale or retail as declared in their sales tax registration."