Walmart: Tug of war continues
It's been four months since the Govt. of India had given green light to the foreign retailers but there seems to be hardly any progress on the part of the retailers. Amidst criticism and opposition, this move can be touted as one of the bravest decisions of the Govt. India provides a lucrative market with high growth potential to the investors with its large customer base. In that case, one cannot help wondering where the hiccup lies; let's take a closer look towards the story so far.
In September last year, the Govt. of India gave a nod of approval to foreign supermarkets to invest up to 51% in local ventures. The catch was a set of terms and conditions to ensure strict local sourcing of 30%. In the exact words of cabinet committee of economic affairs, For FDI proposals beyond 51% in single brand retail, 30% sourcing from 'Small Industries' has been made mandatory. They also need to invest at least $100 million, half of which has to go into backend infrastructure over three years.
This still remains a bone of contention for all major foreign retailers including Walmart. According to Walmart International CEO Doug Mcmillon, his company is really excited about entering Indian market, but they are studying the situations currently. A Walmart spokesperson in India said the company continued to study the requirements placed on FDI in multi-brand retail to better understand how its business would operate in a complex environment.
To add to the already complicated situation, the state government possess the authority to approve the entry to a particular state, thanks to the central Govt. This comes as a major blow as the majority of the states don't raised concern over stores owned by foreign investors including UP, West Bengal and Tamilnadu. Only 10 states and Union Territories have so far allowed their entry bringing the number of Indian cities where these investors are welcomed to 18 from 53 as promised by the announcement in September 2012.
Further clarifications have been sought from the govt. regarding the clauses. For the US authorities it remained unclear whether the amount invested in buying real estate would be included in backend investment calculations and also whether goods can be sourced from states that did not allow retailers to open stores to meet the 30% stipulation.
In the meantime, the lobbying of Walmart with US lawmakers for entering India has posed a problem for the Indian govt. and hence the latter seeks clarifications in this regard. A probe has been initiated into the matter since Walmart is reported to have spent a total of $1.48 million on lobbying which brings the entire bill for 2012 to $6.13 million.