Under pressure from the US, the government might once again be compelled to review the foreign direct investment (FDI) policy in multibrand retail trading (MBRT). At the forefront is American retail giant Walmart, demonstrating a renewed interest in entering India’s fast growing retail market, estimated at over $ 600 billion. Currently, Walmart operates 20 cash and carry or wholesale stores in the country, for which there’s no foreign investment cap.
Minister of state (independent charge) for commerce and industry Nirmala Sitharaman is likely to have an “informal” meeting with Walmart’s India head Krish Iyer this week, according to a source . The meeting is expected to take place in Jaipur on the sidelines of the CII Partnership Summit, a top official told Business Standard on the condition of anonymity.
When asked to confirm Iyer’s meeting with Sitharaman, the Walmart India spokesperson said, “as a policy, we do not comment on rumours and speculations.” Walmart did not give any specific reply to queries on its renewed interest in India’s multi-brand retail or on talks with other companies for possible partnerships. The previous United Progressive Alliance (UPA) government had permitted up to 51 per cent FDI in multi-brand retail, but the current National Democratic Alliance (NDA) regime is opposed to it.
Ever since coming to power in May 2014 with a landslide victory, the government has maintained that it will not allow FDI in multi-brand retail even as it has thrown the doors open to foreign investors in sectors such as defence, railways and real estate. It has also taken the ordinance route to increase the FDI limit in insurance sector to 49 per cent from 26 per cent.
However, it seems that the US is now pushing the government to open FDI in multi-brand retail and also e-commerce with the likes of Walmart and Amazon lobbying hard with the American authorities. That could well mean India taking some “positive steps towards allowing FDI in multi-brand,” the official said.
In fact, days before US President Barack Obama arrives in India, America wants the discourse to take place within the government. It has also asked the government to allow FDI in electronic commerce in the business-to-consumer segment. At present, international e-commerce companies as well as domestic online retailers with foreign investment operate in India through the marketplace format, where FDI cap does not exist.
The $ 476-billion retail chain Walmart has been seeking a meeting with the government since May, but could not make much headway, according to sources.
It is learnt that Walmart’s international president, David Cheesewright, is likely to visit India soon, to convey a positive and changing mood around this market. The group had to stop business expansion in India, among some other countries, due to an internal probe under the Foreign Corrupt Practices Act in the US almost two years ago. Walmart also broke up with its India partner, Bharti Enterprises, bringing all expansion plans to a halt. In fact, its Asia head, Scott Price, had in 2013 said, “Frankly, FDI has passed”, indicating the Indian rules to attract foreign direct investment in multi-brand retailing were too tough.
Earlier this week, Jagdish Bhagwati, trade economist and Columbia University professor, said the Bharatiya Janata Party (BJP)-led government might open up FDI in retail as it has got an absolute majority. While addressing a lecture here, Bhagwati said Prime Minister Narendra Modi was never averse to allowing foreign investment in MBRT.
FDI in MBRT was allowed in September 2012 amidst severe protests by traders and small shopkeepers, after taking consensus from all political parties. After coming to power, the new government has not rolled back the policy but minister Sitharaman has persistently stated that FDI in MRT will not be allowed.
This was also the position BJP had taken in its election manifesto where it highlighted that protecting the interest of small and medium firms will be its topmost priority.