Global multi brand retailers eyeing India including Walmart, Carrefour and Tesco have a reason to cheer as foreign investors may not be required to compulsorily invest in back-end infrastructure every time they bring fresh investments into the country.
The Department of Industrial Policy and Promotion (DIPP) has decided to move a Cabinet note proposing that mandatory 50 per cent investment by foreign players into back-end infrastructure be limited only to the initial investment, a DIPP official told Business Line .
The note, to be submitted to the Cabinet Secretariat this week, would also bring clarity on all remaining issues related to sourcing from group companies and small & medium enterprises after they move out of the classification.
“The DIPP feels that investing in back-end infrastructure every time foreign investors bring in fresh investments may make their projects unviable. We have, therefore, proposed that the compulsory investment in back-end be limited to only the initial investment as was initially envisaged,” the official said.
The FDI policy for multi-brand retail permits up to 51 per cent FDI in a retail outlet. It stipulates that a minimum of $100 million needs to be invested in the venture half of which has to be channelised into back-end facilities including storage, warehouses, cold-chain and other agri-market produce infrastructure. Foreign retailers were disappointed when clarifications on the policy issued by the DIPP early this month stated it was still considering whether mandated investment in back-end should be a one-time rule or a continuous process.
Representatives from about a dozen foreign retail companies including Walmart, Tesco, Carrefour, Auchan and Metro are scheduled to meet Commerce & Industry Minister Anand Sharma on Thursday to seek greater clarity and discuss their apprehensions related to the policy.
Foreign investment in the multi-brand retail sector is yet to come into the country as retailers are still not clear about the final shape the policy, announced last year, would take. The Government is now mulling raising the FDI cap for multi-brand retail to 74 per cent.
The Cabinet note prepared by DIPP is also likely to clarify till when a small industry supplier (with capital investment lower than $100 million) can keep supplying to foreign retail chains under the 30 per cent compulsory sourcing clause after it outgrows the categorisation.
“The Union Budget this year allowed small industry to keep getting benefits reserved for the small sector three years after it ceases to be a small unit. The same will apply in case of sourcing by foreign retail chains,” the official said.
Clarity will also be brought on the issue of sourcing restrictions among group companies.