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.
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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.
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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.