India cannot design rules that run contrary to global business practices and standards
Despite the preliminary agreement signed during the prime ministers recent US visit,Indo-US nuclear cooperation is pretty much dead in the water unless India is able to resolve the issue of suppliers liability in keeping with the global standard that says the liability rests with the plants operator. Going by the recent statement made by Scott Price,Walmarts Asia head,and by Sunil Mittal,another big initiative FDI in multibrand retail is in danger of going the same way. Its the same reason: India wants to fashion its rules in a manner that runs contrary to the way the world does business.
For months after the government announced the opening up of the sector to foreign retailers,no one came in,due to the restrictive rules,the limited number of cities that could be tapped,restrictions on investments and compulsory SME sourcing conditions. Few of these made sense,but there was some justification. Geographical restrictions on retail FDI,for instance,gave freedom to states to decide the pace,and was a smart way to defuse opposition. Given how big retailers like Walmart have third-party firms that set up backend infrastructure for them,the government also did well to finally water down this clause the earlier clause required a Walmart to invest half of everything in setting up backend infrastructure,but this now applies to just the first tranche of investment.
It is the SME outsourcing clause cited by Walmart for re-evaluating its options in India that makes little sense. In its original avatar,a Walmart had to source 30 per cent of its sales from local SMEs,but the way SMEs were defined,by the time a supplier invested enough to be able to supply quality produce to a Walmart,it would no longer qualify to be an SME. As in the backend stipulation,this has been relaxed. Any SME that a Walmart buys from,even if it outgrows the definition of an SME over time,will continue to be counted for the purposes of the 30 per cent clause. But why have this definition at all? Since about 30 per cent of a households everyday basket comprises branded goods,how is a Walmart to compete with a kirana if it doesnt even stock what the consumer wants? Why not just tell foreign retailers,as the BJP seems to have,that Indias shelf space is reserved for Indians?