DIPP initiates exercise for FDI tweaks in wholesale trade

Even as the government is drafting a discussion paper on foreign investment in retail trade, the department of industrial policy & promotion ( DIPP) has initiated an exercise to tweak the foreign direct investment policy for wholesale trading.

Responding to apprehensions raised by major players like the Sunil Mittal-led Bharti Group, which has a joint venture with Wal-Mart, the DIPP has sought the views of the finance ministry and the department of consumer affairs for amendments to the guidelines for FDI in this segment.

“Department of Consumer Affairs and Department of Economic Affairs are requested to kindly provide comments/views on the representations (from the industry players) to this Department at the earliest so that necessary clarification/amendments may be notified by the Department,” says a communication from the DIPP.

The move is significant since the government is keen to attract FDI in wholesale trading, also known as cash & carry trading, to spruce up the country’s distribution network and logistics, including cold chains for perishables.

The highlight of the FDI policy review for wholesale trading revolves around the 25% cap imposed on sales to group companies, imposed through the FDI guidelines which came into effect in April.

A number of players, including Bharti Ventures Ltd and Marubeni Corporation of Japan, have approached the government seeking clarifications on the guidelines, highly-placed government sources said on condition of anonymity.

The DIPP has now initiated a review of the guidelines by seeking the views of the department of economic affairs in the finance ministry and the department of consumer affairs.

Earlier this year, the finance ministry had proposed that trading between group companies should be allowed only to the tune of 25% of the turnover of the company which has a FDI component. Since the finance ministry felt that the retail trading policy would be vitiated in the absence of such a ceiling, it was incorporated in the guidelines for FDI in wholesale trade.

The issue is likely to be discussed soon and a formal meeting could be called if necessary, sources said.
Interestingly, the move comes at a time when the government is planning to come out with a discussion paper on FDI in retail.

There have been allegations in the past that the bar on FDI in retail was being bypassed through several windows including wholesale trading, franchaisees and test marketing. Therefore, the government has also specified a definition for wholesale trading – clearly stating that direct sale to consumers is not allowed.

A number of multinations like Metro, Wal-Mart and Marubeni are engaged in wholesale trading operations in India. The government is trying to encourage more investment in back-end operations like cold chains in order to cut down post-harvest waste of agri commodities.