Foreign investment limit in single-brand retail raised to 100%

Amidst high political drama, the Cabinet finally paved the way for the entry of global retail giants into India.

On a day of big-ticket reforms, the Cabinet cleared the way for multi-brand giants such as Wal-Mart, Tesco and Carrefour to open independent multi-brand retail outlets in the country.

Foreign direct investment (FDI) of up to 51 per cent has been allowed in multi-brand retail. Simultaneously, the Cabinet also gave the nod for upping the FDI limit in single-brand retail ventures to 100 per cent.

The Government had in February 2006 permitted 51 per cent FDI in single-brand retail.

The policy will allow multi-brand foreign retailers to set up shop only in cities with a population of more than 10 lakh as per the 2011 Census. There are 55 such cities. It means big retail chains can move beyond the metros to smaller cities.

Many conditions

The clearance comes with several riders. Foreign investors will be required to put up 50 per cent of total FDI in back-end infrastructure. Such infrastructure will include capital expenditure on all activities, excluding that on front-end units. Expenditure on land cost and rentals will not be counted for purpose of back-end infrastructure.

Retailers will need to source at least 30 per cent of manufactured/processed products from small industries. However, there will not be any obligation on the part of retailers to source agricultural produce such as fruit and vegetables.

It is being assumed that it would make eminent commercial sense for the retailers to source fresh produce locally. It is unlikely that retailers would undertake large-scale imports of agricultural products.

The Government has also retained the first right on sourcing agricultural produce. It is proposed to allow self-certification by the company with regard to the 50 per cent spend on back-end infrastructure, but with the condition that the Government could go in for surprise checks. In terms of single-brand retail, just one important condition has been added to the existing one. It makes 30 per cent sourcing from small and medium enterprises mandatory, as soon as the FDI limit exceeds 51 percent.

Multiple benefits

The Government believes opening up of FDI in multi-brand retail trade and further liberalisation of single-brand retail trade will facilitate greater FDI inflows besides additional and quality employment.

It will also bring a lot of benefits to the consumers and farmers in terms of quality, price and removal of inefficiencies in the agricultural sector.

Shishir.s@thehindu.co.in

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