Clarifying rules for entry to the Indian retail sector, the Department of Industrial Policy and Promotion (DIPP) has said that global retailers planning to enter India in the multi-brand retail sector will have to make fresh investments in back-end infrastructure and acquisition of supply chain or back-end assets from existing entities would not be allowed.
Earlier, global retailers have sought clarifications from the DIPP on various issues, ranging from sourcing to investment in back-end infrastructure. As per the DIPP, the entity has to completely separate the back-end facilities and the front-end retail and will not be permitted to undertake any wholesale activity. Further, the front-end stores set up by the multi-brand retail trading unit will thus have to be company owned and company operated. While back end investment in non-FDI approved states will be counted, it added.
Referring to the back-end investment in multiple infrastructure companies, DIPP said that the back-end entity may be 100% owned by the foreign entity as long as the condition of 50% of the total FDI brought has been utilized in the back-end as an additionality. Addressing concerns over the 30% sourcing clause, DIPP clarified that the sourcing clause from ‘small industries' would apply only to manufactured and processed products, keeping procurement of fresh produce out of the ambit.
Foreign supermarkets mandated to source a minimum of 30% of inputs from 'small industries' with a maximum investment in plant and machinery at $1 million and sourcing would be considered only with reference to the front-end store and no other form of distribution would be permitted.
Meanwhile, DIPP said that it is still considering issues related to sourcing restriction amongst group companies, requirement of 50% investment in back-end infrastructure within three years of the first tranche of FDI and whether sourcing from such 'small industry' can be allowed towards fulfilling this condition, if it outgrows, and if so, until what period.
