In a development that could provide a significant push to the government’s flagship ‘Make In India’ programme, the Centre is said to be considering a proposal to free up the Foreign Direct Investment (FDI) policy on retail for both online and offline products. However, the policy liberalization under consideration will only apply to goods produced in India.
The proposed move, besides acting as a major boost to ‘Make In India’ and attracting investments in the retail sector, will also remove restrictions that apply to companies such as Walmart, Amazon, Tesco and the like.
The current policy bars foreign online retailers to sell goods on their own account through an inventory model. They are only allowed to function as marketplaces, or platforms for buyers and vendors. Multibrand retailers such as Walmart can only own up to 51 per cent of Indian ventures and are subject to other constraints as well.
A report by The Economic Times quotes a senior official as saying that the policy could be brought out by the government once the Assembly elections in Uttar Pradesh conclude.
“It has been proposed that FDI restrictions in retail be lifted to the extent of goods manufactured in India,” he said. “The matter will be deliberated by the government in the near future,” ET quoted him as saying.
While applying restrictions to overseas-owned retail companies, the existing policy allows domestic manufacturers to sell just their own goods through any channel — online or offline. Only in the case of food products can locally processed items be sold by anyone through any mode, a policy change made in August last year to give a boost to food processing.
Retailers have been lobbying for similar exceptions to be made for grocery and personal care items as well. They say confining such stores to food product doesn’t make business sense.
In his Budget speech this year, Finance minister Arun Jaitley had said that the government was considering further liberalising the FDI policy. More than 90 per cent of FDI is currently through the automatic approval route.
The government wants to bolster manufacturing as part of its job-creation strategy. Manufacturing has lagged behind services in total FDI.
India’s retail sector has been gradually opened over the years but with multiple conditions such as local sourcing rules amid strong resistance over fears that smaller, family-run stores would be hit.