Foreign investors in multi-brand retail will have to compulsorily put in half of their total initial investments into creation of new back-end infrastructure facilities, but for additional investments in the future they would be exempt from such a condition, Commerce & Industry Minister Anand Sharma has clarified.
“Foreign investors can make use of existing back-end infrastructure (either put in place by them earlier or owned by Indian retailers who they tie up with) but have to invest the stipulated amount in adding to the existing facilities. However, this condition is only for the initial investment made by a foreign company in multi-brand retail and would not apply for subsequent investments,” Sharma explained to Business Line .
There is confusion amongst potential investors, including British supermarket chain Tesco whose top officials met Anand Sharma on Friday, on what would be counted as investments in back-end infrastructure facilities and if it would have to be increased in proportion to additional investments made in the retail venture.
US retail giant Walmart, which has a tie-up with Bharti for cash & carry operations (wholesale), and French retailer Carrefour, have also expressed strong interest in entering the multi-brand retail sector in India.
The FDI policy stipulates a minimum initial investment of $100 million in multi-brand retail half of which is to be channelised into back-end infrastructure such as processing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse and agriculture market produce infrastructure.
The Government opened up the multi-brand retail sector to foreign investors last September by allowing FDI up to 51 per cent.
The Minister said while foreign investors will have to invest a minimum of $50 million in back-end infrastructure assuming they put in $100 million in their multi-brand retail venture, the amount would be proportionally higher in case investors decide to go in for more than $100 million as their initial investment.
This means, if a foreign company invests $200 million initially in a multi-brand retail project, it would have to invest half of it, which is $100 million, in additional back-end infrastructure.
But if a foreign company that has initially invested the minimum $100 million in multi-brand retail venture, of which $50 million has gone into back-end infrastructure, subsequently decides to invest another $100 million in the retail chain, it would not have to make any additional investments in back-end.
“One would imagine that a foreign company would not like to go beyond the minimum stipulated investment of $100 million as the initial corpus. It could expand its operations by bringing in additional investments at a later stage. So, practically speaking, foreign investors could get away by investing $50 million in back-end infrastructure,” a DIPP official said.