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Govt tightens FDI rules for multi-brand retailers

Foreign players entering India's multi-brand retail segment will not be allowed to franchise their stores and they must source at least 30 per cent of the value of their retail sales from small industries.

twitter-logoPTI | June 7, 2013 | Updated 10:20 IST

Foreign retailers entering India's multi-brand segment will not be allowed to franchise their stores and will have to put 50 per cent of their investments in back-end infrastructure specifically for the chain they are setting up.

In a clarification issued on queries from global retailers, including Walmart, Tesco and Carrefour, on FDI policy for multi-brand retail trading (MBRT), the DIPP said the "front end stores set up by MBRT entity will have to be company-owned and company operated only".

The Department of Industrial Policy and Promotion also said the mandatory 30 per cent sourcing from small industries will be counted only for sales through the front-end stores.

On the contentious issue of investment in the back-end, the DIPP said investments in multiple infrastructure companies would not be counted towards fulfilment of condition of mandatorily investing 50 per cent in the back-end infrastructure.

"50 per cent of the investments brought in, must be invested in back-end infrastructure, and any amount spent in acquiring front end retail stores would not be counted towards back-end infrastructure," DIPP said.

The front-end retail stores must also be set up additionally and not through acquisition of existing stores, it added.

"Investment in the equity of the existing infrastructure company will not be treated towards the fulfillment of the conditionality of 50 per cent investment in back-end infrastructure," DIPP said.

Also, investment towards back-end infrastructure can be made across all states irrespective of whether FDI in MBRT is allowed in that state or not.

Giving clarity on the sourcing part, it said: "The sourcing condition pertains only to manufactured and processed products. Procurement of fresh produce is not covered by this condition."

Last month, Tesco CEO Philip Clarke had met Commerce and Industry Minister Anand Sharma seeking clarity on whether buying of produce directly from farmers would be counted in meeting the sourcing norms requirement.

DIPP further said it is still considering some issues, including requirement of 50 per cent of investment in 'backend infrastructure' within three years of the first tranche of FDI, sourcing restriction amongst 'group companies' and whether 30 per cent sourcing from small industry can be allowed "if it outgrows and if so, till what period?"

As per the present FDI policy, a global MBRT chain will have to mandatorily source 30 per cent of products from small industries, which has been defined as a unit with maximum investment in plant and machinery at $1 million.

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