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Govt may alter retail FDI norms to ease global retailers’ entry

03 Jul 2013 Evaluate

In a move to address concerns of foreign retailers, the government is considering to alter FDI policy in retail sector to allow global retailers like Walmart and Tesco to open multi-brand stores in non-hilly cities with population less than one million. As per the current retail FDI policy, foreign retailers are allowed to open stores only in cities with a million-or-over population. However, these retailers want to open stores in cities with population less than a million, saying that it is important to spread network and to make their business viable.

Further, the Department of Industrial Policy and Promotion (DIPP) may also accept the other demands of retailers to relax mandatory investment norm in the back-end infrastructure, sourcing conditions and definition of MSMEs. Recently, retailers sought clarifications on sourcing issue in which foreign retailer must source 30 per cent of the items that it sells in India from small industries. They also asked for a relaxation in the rules for investment in the back-end infrastructure as the current policy says that 50 per cent of first tranche of the mandatory minimum $100 million FDI must go in the back-end infrastructure and not in buying land and building.

The government had already held a meeting with retail industry to solve issues in retail foreign direct investment (FDI) norms. The government has permitted 51 per cent FDI in multi-brand retail about nine months back, but it has been met with a lukewarm response, as investors consider the pros and cons of entering a complex market rife with regulatory hurdles. No formal proposal has been received by the DIPP yet as it has imposed many conditions on such investment, which created confusion among the foreign retailers regarding multi-brand guidelines.

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