China fear holds up FDI in retail

The prospect of FDI in retail has raised fears of Chinese goods flooding the market.

So the ministries of telecom and information technology, and micro, small and medium enterprises (MSME) want the government to protect the local industry from a Chinese onslaught. The ministries fear that global retailers, several of whom already have stores in China, will use their vendors across the border and also tie up with newer players to ship products into India. Already, Chinese toys and electronics have flooded markets in Indian cities.

Though the department of industrial policy and promotion (DIPP), which is pushing the proposal, had suggested that foreign retailers be mandated to source 30 per cent of their requirements from small scale industry, there were fears that such a prescription could attract action at the World Trade Organization. So, the secretaries will suggest how to balance the twin objectives of protecting local electronics and small-scale players and yet get around global trade rules. Based on these inputs, the industry department will prepare the Cabinet note to allow foreign stores such as Wal-Mart and Tesco to acquire up to 51 per cent stake in joint ventures in multi-brand retail business, a sector that is closed for foreign players right now.

At present, the government allows foreign chains to enter the wholesale cash-and-carry segment which restricts their sales to institutional buyers such as hotels, restaurants and even retailers. International single brand retailers are permitted to set up Indian ventures. Currently, foreign companies are only allowed to own 10 per cent of a business in the retail sector. Some retailers feel that throwing open retail to FDI would give more opportunities to a lot of Indian companies and that this sector would grow at 25 to 30 per cent. Besides, one of the objectives is to enable local manufacturers to scale up and meet international standards.