Chinese goods may find entry in the garb of FDI

At least two ministries have raised fears of  Chinese goods flooding shelves in retail chains if the doors are opened to foreign players to set up multi-brand stores in the country. The concern has prompted the government to work out a safety valve for the much-awaited FDI in retail to go through.

The government had earlier planned to get Cabinet nod for allowing FDI in retail in August but there could be some delay. Senior government officials told TOI that the ministries of telecom and information technology, and micro, small and medium enterprises (MSME) suggested that the government first put in place riders to ensure that the local industry was protected against a Chinese onslaught.

Though the department of industrial policy and promotion (DIPP), which is pushing the proposal, had suggested that foreign retailers be mandated to source 30% of their requirements from small scale industry, there were fears that such a prescription could attract action at the World Trade Organization. So, secretaries from textiles, MSME and telecom and information technology will suggest how to balance the twin objectives of protecting local electronics and small-scale players and yet get around global trade rules.

Based on these inputs, the industry department will prepare the Cabinet note to allow foreign stores such as Walmart and Tesco to acquire up to 51% stake in joint ventures in multi-brand retail business, a sector that is closed for foreign players right now.

At present, the government allows foreign chains to enter the wholesale cash-and-carry segment which restricts their sales to institutional buyers such as hotels, restaurants and even retailers. International single-brand retailers are permitted to set up Indian ventures.

The ministries fear that global retailers, several of whom already have stores in China, will use their vendors across the border and also tie up with newer players to ship products into India. "Already, Chinese toys and electronics have flooded markets in the metros and large cities, once FDI in retail is allowed, even the smaller cities will see a rise," said an official.

Though there are tools to check against a surge, officials said it was often difficult to prove dumping and levy duties. Besides, one of the objectives of allowing foreign retailers into India is to enable local manufacturers to scale up and meet international standards while remaining competitive. High level of import-dependent strategy would not help local players, officials said.