The Government, which has been facing flak for ‘policy paralysis’, on Tuesday notified 100 per cent Foreign Direct Investment in single-brand retail trading – moving a step forward in opening up of the retail sector.
This FDI limit is up from the extant ceiling of 51 per cent. Investments will be through the Government approval route.
The move will enable multinational majors such as Louis Vuitton, LLadro, Nike, Adidas, Fendi, Gucci and Toyota to fully own and control their operations in India.
However, the notified Press Note has an important rider. It says, “In respect of proposals involving FDI beyond 51 per cent, mandatory sourcing of at least 30 per cent of the value of products sold would have to be done from Indian ‘small industries / village and cottage industries, artisans and craftsmen’.”
“'Small industries' would be defined as industries which have a total investment in plant and machinery not exceeding $1 million,” it adds.
The Commerce, Industry and Textiles Minister, Mr Anand Sharma said that the 30 per cent mandatory sourcing clause “will provide stimulus to domestic manufacturing value addition and help in technical upgradation of our local small industry".
On the rationale for enhancing FDI ceiling to 100 per cent in single brand retail, the Government had said that in the last five years, under the 51 per cent FDI regime, only $44.45 million of foreign investments were received by the sector, constituting barely 0.03 per cent of the total FDI inflows.
“Globally, single brand retail follow a business model of 100 per cent ownership and global majors have been reluctant to establish their presence in a restrictive policy environment,” the Government had said, adding that “The 51 per cent cap confers a right to pass all ordinary resolutions, while enhancing cap to 100 per cent will confer full ownership and control.”
In November last year, the Cabinet had approved the move to allow 100 per cent FDI in single brand and 51 per cent FDI in multi-brand retail. However, a wave of protests and an eye on the forthcoming Uttar Pradesh assembly polls initially forced the Government to suspend its decision. Sensing that the protests were not directed at hiking the FDI limit in single-brand retail, it then decided to de-link that segment from multi-brand. A decision on opening up of multi-brand retail is expected after the UP assembly elections.