After US retail giant Walmart, it may be UK’s clothing chain Marks & Spencer (M&S) turn to face the heat from the Enforcement Directorate on charges of alleged violation of Foreign Direct Investment rules levelled against it by the Finance Ministry.
The Department of Industrial Policy and Promotion (DIPP) will soon send a communication to the Finance Ministry endorsing its observations on possible violation of FDI rules by the clothing chain, which has been selling its sub-brands at its single-brand stores in India. This could result in the matter being referred to the Enforcement Directorate, a DIPP official told Business Line .
The DIPP is the nodal body that regulates FDI in the country. “Since it appears to be a case of violation of Foreign Exchange Management Act (FEMA) rules, it is the Enforcement Directorate that may have to step in,” the official said.
The Finance Ministry had sent a letter to DIPP earlier this month seeking to know if the selling of sub-brands by M&S in its single-brand retail venture was in accordance with the FDI policy.
SUB-BRANDS
M&S operates 28 single-brand retail stores in India under a joint venture partnership with Mukesh Ambani’s Reliance Retail. In addition to the M&S brands being sold in the stores, the retailer also offers its sub-brands Autograph, North Coast, Collezione, Blue Harbour and Indigo Collection.
“There is no room for sub-brands in a single-brand retail venture. Had M&S operated as a multi-brand retail store, there would have been no problems,” the official said.
When M&S had entered India in 2008 as a single-brand retail company, the country did not allow FDI in multi-brand retail. In September last year, the Government finally allowed 51 per cent FDI in multi-brand retail but under stricter conditions such as compulsory sourcing of 30 per cent inputs from small and medium enterprises. No proposal for FDI in multi-brand retail has been received since then.
“It is understood that the multi-brand retail segment is much more sensitive in India than the single-brand retail sector as FDI in multi-brand would directly be in competition with mom-and-pop stores. That is why there are more stringent rules of operations for foreign investors in multi-brand. We certainly can’t allow single-brand ventures to get away with multi-brand activities,” the official said.
Interestingly, the Enforcement Directorate, which is probing allegations of foreign exchange violation against Walmart in its investments in two Indian firms, has asked the DIPP to clarify the policy details on multi-brand retail.
Walmart is in partnership with the Bharti Group for wholesale cash-and-carry business, but allegations have been made against it for investing in front-end activities as well.