The proposal of the Union Cabinet on Friday to allow 51 per cent foreign direct investment (FDI) in multi-brand retail clears the deck for multi-national chains such as Carrefour, Tesco and Walmart to set up shop in India, but with riders.
It clearly says that approval should be taken from the Foreign Investment Promotion Board (FIPB) for investments. Further, it says the foreign investor should make a minimum investment of $100 million, 50 per cent of which should be invested in “back-end infrastructure”. Also, 30 per cent of the products must be be procured from small-scale industries.
It also states that fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. For the purpose of FDI in multi-brand retail, the note describes small industries as units which have a total plant and machinery investment not exceeding $250,000 (around Rs.1.25 crore). This investment refers to the value at the time of installation, without providing for depreciation. The foreign retail chains will be required to comply with self-certification. They have to keep all records, and the government will have the first right to procure agricultural produce.
As for the back-end investment, it states that investments made towards processing, manufacturing, distribution, design improvement, quality-control, cold chain, warehouses and packaging, will constitute back-end. Retail chains will be allowed only in cities with a population of more than 10 lakh as per 2011 Census. There are 51 cities with a population of more than one million, based on 2011 Census.
Some of the key conditions for allowing 100 per cent FDI in single-brand retail include products sold under the same brand name internationally; product retailing will cover only those products that are branded during manufacturing , and the foreign investor should be the owner of the brand.
Union Commerce and Industry Minister Anand Sharma said chief ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana, Manipur and Jammu and Kashmir and the Union Territory of Daman & Diu and Dadra and Nagar Haveli expressed support for the policy. At the same time, Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha have expressed reservations against such a move.
The guidelines clearly states that retail sales outlets may be set up in those States which have agreed or will agree in future to allow FDI in multi-brand retail under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act.
In States/ UTs not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the master/zonal plans of the cities concerned and provision will be made for requisite facilities such as transport connectivity and parking.
At least 50 per cent of total FDI brought in shall be invested in ‘back-end infrastructure’ within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.
Keywords: FDI in retail, multi-brand retail, UPA government, India retail sector
Any reform will have winners and losers. India needs billions of
dollars in logistics development. Every year millions of dollars of
vegetables, fruits and food grains go to waste because of poor
storage. It is clear that India does not have the expertise to solve
these problems. FDI in retail will bring about a change in the way
that prices will come down and efficiency will improve across the
sector. Middlemen will be big losers and that is not a bad thing. Even
in the event of FDI - I do not think this is will be the end of the
corner shop. India is a country of 1 Billion and there is space for
everyone. My deep concern is that by providing the power to the states
to decide on FDI retail. Another round of corruption in the offing.
One more controversy is about to begin. This is something that is unavoidable. with FDI coming into the Indian market, whether benefits will made by the farmers or not, whether it will create undue competition for the small retailers or not, there are people who will be definitely benefited and they are the high end Babus. It will surely benefit the customers as there will be less intermediates. On the other hand, as per the policies mentioned above that the Foreign Direct Investors will have to follow certain regulations. Now here come the Babus on the rescue of the FDI. They will take care in all ways to soften these restriction for the FDI. And to our surprise, FDI will take all steps to strengthen themselves in the creamy Indian market in the middle of all opposition. I am not over reacting on the corruption issue, but this is what majority thinks. I will definitely want something good for India. Please someone prove me wrong in what I think on this issue.
If the FDI retail outlets are allowed only in cities where the population is more than 10 lakhs, it means that the Govt. wants to safe guard the interest of small local traders in cities less than 10 lakh population. Then, why the exception in States and UTs where there is no city with more than 10 lakh population. What about the interest of small traders in these bigger cities of states and UTs. Why the disparity within the country just because the small traders are situated in a state or UT where no bigger cities of 10 lakhs situated.Is FDI retail outlets a policy based on the size of city or is it that every state and UT must have these FDI retailers. Can the rulers look into this.
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