Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
Q. Issues of FDI in single brand retail: In the backdrop of recent developments, discuss the issue of FDI in single brand retail.
Jun 07, 2016 Related to : GS Paper-3

Ans :

In news-

Recently commerce minister said that she will convince the ministry of finance to consider the Apple company request to waive the 30 % rule for two to three years in order to give Apple the chance to comply with the law and sell locally sourced goods by the time that grace period is over.

Introduction-

  • To attract the investments and to improve India’s ease of doing business ranking, government has revised FDI regulations in November 2015. In its new norms, government eased the rules to permit 100% FDI in Single Brand Product Retail Trading subject to the sourcing clause.

  • According to this sourcing clause, that companies with more than 51% foreign ownership must source 30% of the value of goods in India, preferably from medium, small or micro enterprises.

  • Minimum 30% sourcing requirement for foreign companies from domestic manufactures have great socio-economic relevance. It will create more jobs and protects livelihood of Indians.

Issues-

  • Sourcing clause has benefits to domestic manufactures particularly medium, small or micro enterprises, but it could violate WTO’s National Treatment norms, hence government has amended the sourcing clause and exempted in specific cases.

  • According to amendment those entities which are selling products having state-of-the-art and cutting-edge technology have been exempted from souring norms. Similarly in case where local sourcing is not possible, they also exempted from these norms.

  • In both cases exemptions are defined ambiguously and norm on sourcing locally became significant grey area, left to discretionary powers of authority.

  • Recently using these norms MNC’s like Apple, Xiaomi are requesting for exemption from local sourcing norms.

Impact-

  • It may create unnecessary and extreme debate about when and whom exemptions should be given.

  • It will give discretionary powers to authorities indirectly and may leads to corruption. Also it dilutes the transparency principle and possibly leads to litigations.

  • Similarly business of entities who have invested in local manufacturing capacity would be affected if a rival incorporating a similar level of technological advancement in its products were exempted.

  • Exemption clause also affects the domestic business particularly of medium, small or micro enterprises.

Suggestion-

  • Instead of exemption in few specific cases, either sourcing clause should apply all entities which wants to participate in FDI retail business or government can drop this clause altogether.

  • To promote FDI in India, government should create environment of level playing field, transparent system without any discretionary power to authorities.

  • Though India needs FDI in retail sector, but we need to protect our medium, small or micro enterprises, because it supports livelihood of large amount of people.

Conclusion-

Government wants to improve the availability of quality goods with enhanced competitiveness, so that consumer gets best goods with competitive price. For that government should roll out such norms which should be very clearly stated without any ambiguity and it will definitely boost our market. Though India needs FDI in retail sector government should be very careful to protect the interest of domestic manufactures.


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.