Govt formally notifies FDI in multi-brand retail

Opens floodgates for players like Wal-Mart, Tesco and Metro to expand operations in India

The formal notification on FDI in retail has opened the floodgates for players like Wal-Mart, France’s Carrefour S.A, UK’s  Tesco and Germany’s Metro AG to expand Indian operations. Besides, several new entrants are awaiting permission to explore India’s vast consumer market.

Walmart already has a 50:50 cash and carry joint venture with the Bharti Group, while Carrefour runs wholesale stores. Tesco has a tie-up with the Tata group. Relaxation in sourcing norms for foreign retailers investing beyond 51 per cent in single-brand were also effected with Thursday’s decision.

The major caveats to opening up a retail store under multi-brand segment are: minimum amount to be brought in as FDI by the foreign investor should be $100 million, at least 50 per cent of total FDI should be invested in back end infrastructure within three years of the first tranche of FDI and retail outlets should be set up only in cities with a population of over 10 lakh.Back end infrastructure includes investment made for processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house etc.

According to the notification, expenditure on land cost and rentals will not be counted for back end infrastructure.

Besides, at least 30 per cent of the manufactured products procured should be from small industries with a total investment in plant and machinery not exceeding $1 million.

The notification also said retail trading, in any form, by means of e-commerce, will not be permissible. For agricultural procurement, it said, the government will have the first right to procure agricultural products. It said applications will be processed in the Department of Industrial Policy & Promotion to determine whether the proposed investment satisfies the notified guidelines, before being considered by the Foreign Investment Promotion Board, for government approval.

States which have so far agreed upon FDI in the multi-brand retail are Andhra Pradesh, Assam, Delhi, Haryana, Jammu & Kashmir, Maharashtra, Manipur, Rajasthan, Uttarakhand, Daman & Diu and Dadra and Nagar Haveli.

Single brand

Two main conditions were tweaked for permitting FDI in single brand retail. Earlier, retail chains in which more than 51 per cent were held by foreign investors, 30 per cent of the value of goods purchased would have to be from India, preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen.
Under the new rule, 30 per cent of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, only where it was feasible.