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Govt moves to permit FDI in retail with riders

The riders for opening up FDI in multi-brand retail include 51% investment in back-end infra and 30% sales to small retailers.

Sandeep Bamzai | June 10, 2011 | Updated 11:02 IST

A beleaguered government grappling with the ogre of rising food inflation is clearing the decks for foreign direct investment (FDI) with certain caveats into multi-brand retail. On Thursday, government data showed that food inflation rose to a two month high of 9.01 per cent for the week ended May 28, up from 8.06 per cent in the previous week.

The department of industrial policy and promotion (DIPP), which falls under the commerce & industry ministry has now mooted a proposal to throw open India's Rs 79,000-crore retail market to transnational retailers, such as WalMart , Carrefour and Tesco, among others.

The plan now is to open FDI in multi-brand retail trading (MBRT) to the extent of 51 per cent, in a manner similar to the existing framework for single brand retail. However, the riders are that at least 50 per cent of the total FDI proposed by an investor should be in back-end infrastructure. A statement of accounts would be filed with the Reserve Bank of India (RBI), with a copy to the Foreign Investment Promotion Board (FIPB), disclosing clearly that at no point in time investment in back-end infrastructure is less than 50 per cent. Investment in such back-end infrastructure need not necessarily be made by the same entity that is making the FDI. It could also be made separately by an outsourced entity, specifically commissioned for this purpose.

The minimum FDI to be brought into a project with MBRT would be $100 million. Retail sales locations will be set up in cities with populations of more than 10 lakh (2011 census). An area of 10 km around the municipal/urban agglomeration limits of such cities could also be included in the permissible location. An interesting deviation is that this will not be foisted on anyone. Front-end retail outlets will be set up only in those states where the states agree to allow FDI in MBRT.

Another vital caveat is that 30 per cent of the sales turnover should be made to small retailers, either directly or through wholesale cash-and-carry units set up for this purpose. State governments will be allowed to set conditions for integrating the small retailers/kirana merchants into the value chain. This is important because the UPA chairperson Sonia Gandhi has in the past asked the government to tread cautiously in opening up FDI in MBRT because it could impact neighbourhood grocery stores. At least 30 per cent of the value of manufactured items procured (excluding food products) should be sourced from the small and medium enterprises (SME) sector, once again ring-fencing the lowest common denominator in the food chain.

DIPP has now asked government departments to put in place frameworks to monitor compliance with these conditions. Among the nine departments which have responded, the ministry of agriculture, food processing and Planning Commission have supported 100 per cent FDI in MBRT, while the department of consumer affairs (DCA) supports 49 per cent in MBRT. The department of pharmaceuticals has said that FDI in MBRT be included under the study on regulatory environment for FDI being conducted by the department of commerce.

The department of economic affairs has stated that its comments would be warranted at the time of the inter-ministerial consultations, just prior to the placing of the draft policy for consideration of Cabinet/CCEA.

Courtesy: Headlines Today

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