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Govt relaxes policy on FDI in multi-branded retail trade

Govt relaxes policy on FDI in multi-branded retail trade

The Union government on August 1 approved the amendments or relaxation of the foreign direct investment (FDI) policy on multi-brand retail trading (MBRT), by easing main contentious riders on such money. These three riders, added as conditions to last yearÂ’s decision to open FDI in this segment, were on a mandatory 30 per cent sourcing from small domestic industries, 50 per cent of the investment to be in back-end infrastructure and outlets to be opened only in cities with population of more than a million.

On the 30 per cent sourcing, the government expanded the definition of micro, small and medium enterprises (MSME). This facilitates to include companies with a total investment of up to $2 million eligible for such sourcing of ‘manufactured and processed’ products.

At least 50 per cent of total FDI brought in the first tranche of $100 million, shall be invested in backend infrastructure` within three years, where `back-end infrastructure` will include capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.

Subsequent investment in the back-end infrastructure would be made by the MBRT retailer as needed, depending upon his business requirements.

At least 30 per cent of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian micro, small and medium industries which have a total investment in plant & machinery not exceeding US $2.00 million. This valuation refers to the value at the time of installation, without providing for depreciation.

The `small industry` status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a `small industry` for this purpose even if it outgrows the said investment of US$ 2.00 million, during the course of its relationship with the said retailer.

Sourcing from agricultural co-operatives and farmers co¬operatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years` total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per the 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

The amendment in the extant FDI policy relating to Multi-Brand Retail Trading in respect of `small industry` will bring in a balance between the business exigencies of the MBRT entity and intent of the policy which is to extend the benefits of the FDI policy in multi-brand retail trading to a larger constituency of small industries. The amendment in the provision regarding `back-end infrastructure` will give more clarity to the policy. The amendment to the provision regarding location of retail outlets will bring in parity in the policy as it is proposed to extend such dispensation to all States.

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