In a bid to remove the impression that UPA II was suffering from “decision making paralysis” and kicking off the second generation reforms, the Union Cabinet on Thursday gave its approval to allowing 51 per cent foreign direct investment (FDI) in multi-brand retail and 100 per cent FDI in single brand retail.
The decision is likely to clear the decks for the entry of foreign retail giants such as Teso, WalMart and Carrefour who have been waiting in the wings for long to get a taste of the $450 billion worth of retail Indian market. The announcement invoked strong criticism from Opposition parties, including the BJP and the Left, but was welcomed wholeheartedly by corporate India. The opposition from one of the UPA allies, Trinamool Congress, to the proposals did not deter the government from taking the decision.
Emerging from the prolonged Cabinet meeting, Food Minister K.V. Thomas said the Cabinet cleared 51 per cent FDI in multi-brand retail and also hiked from 51 per cent to 100 per cent FDI in single-brand retail. Commerce and Industry Minister Anand Sharma will make a formal statement in Parliament on Friday. The Cabinet has almost endorsed most of the recommendations made by the Committee of Secretaries (CoS).
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The proposal for 51 per cent FDI in retail has come with certain riders, including approval to be taken from the Foreign Investment Promotion Board (FIPB), a minimum investment of $100 million by the foreign investor, 50 per cent of the total FDI to be invested in “back-end infrastructure” and 30 per cent of the products to 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, the Cabinet note clearly states that investment made towards processing, manufacturing, distribution, design improvement, quality control, cold chain, warehouses and packaging, amongst others, will constitute back end. The retail chains will be allowed only in cities with a population of more than 10 lakh as per the 2011 census. There are 51 cities with a population of more than one million, based on the 2011 census.
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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.