FDI in multi-brand retail: Government mulls free sourcing from wholesale venture

NEW DELHI: The government is mulling a significant rule change that will allow retailers to source goods freely from their group wholesale ventures, even as the Delhi High Court has admitted a public interest litigation that alleges sales by Bharti-Walmart to Bharti Retail violate the restriction on FDI in multi-brand retail.

The FDI policy allows wholesale trading firms to sell to their group retail venture but limit such sales to 25% of total turnover. It does not define 'group company'.

The department of industrial policy and promotion ( DIPP), the nodal body for FDI policy, has proposed that only 51% subsidiaries should be covered under the definition of group companies.

The DIPP has sent out a reminder to the finance ministry on July 12, a day after activist Vandana Shiva filed a PIL with Delhi HC alleging that the US-based Walmart is retailing to the end consumer through Bharti Retail.


India allows 100% FDI in wholesale cash and carry, but multi-brand retailing is not open to foreign investments.

"Our PIL asks for an investigation on what is the relationship of Bharti Walmart and Bharti Retail, and what share of the wholesale is being routed through Bharti Retail," said Vandana Shiva of Navdanya.

"We have filed the PIL because we believe there are too many loopholes in the current policies."

The high court has issued notices to Bharti Walmart, Bharti Retail and the central government on the PIL.

"The FDI policy does not define group company....Having a wide definition will bring clarity and ease implementing the policy..." said a government official privy to the proposal. The DIPP has sought finance ministry's views on the subject.

The restriction on group company sales had been put at the insistence of the finance ministry. The rule change will benefit Bharti Retail, which sources goods from Bharti Walmart, a 50:50 cash and carry venture between Bharti Enterprises and Walmart.

If the proposed definition is accepted, Bharti Walmart will not be considered a group company.

Its sales to Bharti Retail will not be covered by the restrictions, giving it unrestricted access to goods from the wholesale venture.

At present, there are different definitions of group companies. The foreign trade policy of the commerce and industry ministry says a company that has 26% or more investment by another company will be considered a group company of the later. But RBI defines group company as one having 20% interest under the norms for core investment companies.

Experts say there is a need to clear the air.