Walmart to present paper to government on sourcing model

Scott Price, President & CEO, Walmart Asia, had met DIPP officials last week for discussion on India operation, especially procurement

American retail chain Walmart Stores, yet to make an application for opening retail stores in India, is planning to send a paper on its sourcing model to the Department of Industrial Policy and Promotion (DIPP) soon, it is learnt. The next round of government clarification to the multi-brand retail policy could come after weighing the points made in that paper.

Scott Price, president and chief executive, Walmart Asia, had met DIPP officials last week for discussion on India operation, especially procurement. The chain was still deeply interested in India and was not looking at exiting this market, though cracks may have developed in Walmart’s relations with partner Bharti, sources pointed out.

As 30 per cent mandatory sourcing from Indian small and medium enterprises has been a sticky point for Walmart all along, it is now trying to convince the government with documentary evidence on why the procurement norm would be difficult to follow.

HURDLES IN THE WAY

• Thirty per cent mandatory sourcing from Indian MSMEs
• Requirement of statewise clearances to retail chains
• Apprehensions of a policy reversal if the BJP, which opposed FDI in retail, forms the government at the Centre

"We are waiting for the Walmart paper on its sourcing model, after which we will decide on further clarifications on FDI conditions in multi-brand retail," a DIPP official told Business Standard without elaborating on the specifics.

The Cabinet cleared up to 51 per cent foreign direct investment (FDI) in multi-brand retail exactly one year ago. But there hasn’t been a single proposal so far, due to policy riders which are considered tough by the industry. Thirty per cent mandatory sourcing from Indian micro, small, and medium enterprises (MSMEs) tops the list of hurdles. There are other roadblocks like the requirement of statewise clearances to retail chains, upcoming elections and fear of a policy reversal if the Bharatiya Janata Party (BJP), a party that has opposed FDI in retail, forms the government at the Centre. To woo foreign investors, DIPP recently issued clarifications easing some of the norms. But companies are asking for more.

Large retailers, including Walmart, follow several categories of procurement or sourcing formats for different markets, according to Arvind Singhal, founder and chairman, Technopak Advisors, a consultancy. In 2010, Walmart had announced a centralised sourcing for its international business, thereby doing away with intermediaries to save billions of dollars every year.

When asked whether Walmart would like to follow the global sourcing model in India; if Asia CEO Price would be back at DIPP soon to talk of the policy riders; and on the chain’s India market plans, a company spokesperson said: “As said before, India is an important market for us. We continue to study the implications of the current FDI policy on our business and appreciate the government’s willingness to consider our requests to provide clarity on the conditions contained in the policy.”

Multinationals are of the view that compliance with the sourcing norms could be possible only after some years of operation in the country when more local vendors would be available, experts said. Specifically on Walmart, its sourcing model may be at variance with the Indian procurement norms mandating 30 per cent purchase from MSMEs.

Walmart, which formed partnership with Bharti group for a cash-and-carry venture in India six years ago, has 20 wholesale outlets in the country. It has not expanded this year, and may like to consolidate for now, industry sources pointed out.

For front-end retail, Walmart gives technical support to Bharti’s EasyDay chain. Walmart was earlier contemplating buying into Bharti’s EasyDay to operate its stores jointly, but there’s no certainty on it at this point.