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Government allows 51% FDI in multi-brand retail
Our Bureau
Date of posting: 28-11-11
      The Indian Cabinet has now take the long awaited decision for allowing FDI (Foreign Direct INvestment) in multi-brand retail trade (MBRT), thus being on the same track like other Asian countries like China or Thailand.

      The Cabinet permits FDI in MBRT in all products subject to the following conditions. First is that FDI in Multi Brand Retail Trade (MBRT) may be permitted up to 51% equity, with Government approval. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.

      The minimum amount to be brought in, as FDI, by the foreign investor, would have to be USD 100 million.

      At least 50% of the total FDI brought in shall be invested in `backend infrastructure`, 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.

      At least 30% of the procurement of manufactured/ processed products shall be sourced from `small industries` which have a total investment in plant & machinery not exceeding US $ 1.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a `small industry` for this purpose.

      Self-certification by the company, to ensure compliance of the condition as above, which could be cross-checked as and when required. Accordingly, the investors to maintain accounts, duly certified by statutory auditors.

      Retail sales locations may be set up only in cities with a population of more than 10 lakh as per 2011 Census only 53 cities qualify for FDI in multi-brand retail out of nearly 8000 towns and cities 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 FDI in multi-brand retail is being opened in 53 cities only with population of 1 million and for the rest of the country, current policy regime will apply.

      In the current regime, 100% FDI is allowed upto wholesale cash and carry point from which franchise/small retailers are able to source quality products for sale to the public at large.

      Government will have the first right to procurement of agricultural products.

      At the same time, Government of India is opening up FDI in single brand retail which was limited to 51%, to 100% now. Rationale for enhancing FDI ceiling to 100% in single brand retail trading is that in the last 5 years, under the current regime of 51% FDI in single brand retail, foreign direct investment of only USD 44.45 million has been received, constituting barely 0.03% of total FDI inflows.

      Globally, single brand retail follow a business model of 100% ownership and global majors have been reluctant to establish their presence in a restrictive policy environment. The current cap of 51% confers a right to pass all ordinary resolutions, while enhancing cap to 100% will confer full ownership and control.

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