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  3. Union Cabinet approves proposal of FDI in multi-brand retail

Union Cabinet approves proposal of FDI in multi-brand retail

25 Nov 2011 Evaluate

The Union Cabinet on November 24 finally approved a proposal of up to 51% foreign direct investment (FDI) in multi-brand retail, and up to 100% FDI in single brand retail. The route has been long tapped by foreign retailers such as Wal-Mart and Carrefour to enter Asia's second fastest growing economy.

However, the proposal clearance has come with some checks; foreign investors will be required to invest up 50% of total FDI in back-end infrastructure, excluding the land cost and rentals. Retailers will also need to source at least 30% of manufactured/processed products from small industries, excluding agricultural items. The government has also retained the first right on sourcing agricultural produce. In terms of single-brand retail, the government has made 30% sourcing from SMEs mandatory once the FDI limit exceeds 51%. Not only this, the policy will allow foreign retailers to set up shop only in cities with a population of more than 10 lakh as per the 2011 Census. There are 55 such cities in India currently.

The Union Cabinet's move is likely to bolster the interest of foreign retailers in India, even as many existing joint venture (JV) partnerships between Indian and foreign retailers could get realigned. Various industry bodies have welcomed the decision of the government, FICCI president, Harsh Mariwala said, ‘We welcome the long awaited move of the Government of allowing FDI in multi-brand retail. It is a step which will have positive implications for various segments like food processing, farming and SMEs. This policy initiative is expected to bring more investments not just in the front end but also in the back-end infrastructure, which would result in reduced wastages and would also help in addressing the issue of inflation over a period of time.’

Industry body ASSOCHAM said foreign investments in Indian retail sector will inject competition and efficiencies, create lakhs of new jobs across the country and reduce considerable difference in farm gate prices, wholesale prices and retail prices.

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