Concerns Over State Veto Power on FDI in Retail
Walmart, the American multinational retail corporation, and the US government have voiced their apprehensions regarding the authority granted to individual states by the Indian government concerning foreign retailers' entry. The central government's decision to empower states with the ultimate say on this matter is perceived as an obstacle for prospective foreign investors.
This veto power has made many foreign retailers, including Walmart, the world's largest supermarket chain, hesitant about investing in the Indian market. They remain reluctant to fully commit to the Indian retail landscape due to this uncertainty.
The UPA government, in its efforts to boost FDI in retail, had previously eased restrictions on foreign retailers, permitting them to establish their own stores in India, contingent upon obtaining approval from the respective state governments.
However, only a limited number of states and union territories have thus far granted permission to foreign retailers. A significant number of states, including Tamil Nadu, Uttar Pradesh, and West Bengal, have declined the entry of these retailers. This fragmented approach creates further complexities for companies like Walmart.
An additional concern for Walmart is the mandatory requirement of sourcing 30% of their products from small-scale enterprises, instead of operating exclusively as a mono-brand business. IKEA has reportedly encountered similar challenges.
To address these concerns, Walmart executives, accompanied by US government officials, recently met with India's Commerce & Industry Minister, Mr. Anand Sharma. The US representatives sought clarification on the FDI policy, particularly the stipulation that mandates a minimum investment of $100 million for foreign retailers. They also expressed anxieties about the potential for policy alterations with changes in government.
In response, Minister Sharma clarified the government's stance that these retailers are allowed to procure goods from any state without restrictions or limitations. He emphasized the openness of the Indian market in this specific regard.
Walmart has been among the most anticipated foreign retailers expected to enter India. A spokesperson for Bharti Walmart affirmed the company’s eagerness to establish operations in India and added that it has conducted thorough market research since the announcement of the updated FDI policy back in September. Despite this enthusiasm, though, the group remains cautious due to persisting uncertainties surrounding state-level regulations.