FDI in retail: Unclear sourcing norms, stand of many states make global retailers wary of India entr.

 NEW DELHI: The initial brouhaha over allowing foreign retailers to open supermarkets in the country and own 100% in single-brand retail chains is fading with many global players remaining reluctant to commit investments due to unwelcoming stance of many state governments and confusion over local sourcing norms.

France's second largest retailer Groupe Auchan SA, which signed up a franchisee agreement with Landmark Group in August, is reportedly exploring possibilities of investing in the country but trade insiders say it is on a wait and watch mode to see how most of the 28 states and seven union territories respond to the latest policy on foreign investment in multi-brand retailing.

As per the policy state governments can decide if they want such a retailer in their states. Many lucrative states including Uttar Pradesh, Gujarat, Tamil Nadu and West Bengal have said no to FDI in multi-brand retail. Majority of Auchan's nine stores in India are in those states that do not permit FDI in supermarkets. Auchan did not respond to an e-mail questionnaire.

On the single-brand front, retailers are seeking crucial clarifications from the government even after the country eased 30% mandatory local sourcing norm for ventures with foreign ownership.

"There is still no clarity on sourcing qualifications," says Vineet Aneja, partner at legal firm Clasis Law that is facilitating the entry of many single-brand retailers including Massimo Dutti and Promod in the country.


The law-firm has written to the Department of Industrial Policy and Promotion, the gatekeeper for such investment proposals, to spell out the conditions of "preferably" sourcing from local SMEs.

"Does the term 'preferably' imply that while sourcing its purchases from India, based on the viability and feasibility of such sourcing, the Indian company which is the recipient of FDI is free to decide between Indian suppliers which are not MSMEs, village and cottage industries, artisans and craftsmen?'' Clasis Law has asked DIPP in a recent letter.

The law firm has further sought clarification from the government agency on whether a foreign company's global centralised base that also sources from India would qualify as the mandatory local sourcing. The policy says a company registered in India and receiving FDI should source products from the country.

Even Swedish furniture firm IKEA, in its revised application to the government, has said that it will operate through two entities in India, one that will source products and the other that will sell to consumers, meaning the company receiving FDI will not source.

Source : economictimes.indiatimes.com