Govt may ease FDI norms in multibrand retail this week

Last month, DIPP even issued a four-page clarification but that also failed to soothe investors' nerves

The Cabinet Committee on Economic Affairs might relax the foreign direct investment (FDI) policy on multibrand retail at its meeting on Thursday.

Some of the contentious riders pertain to investment in back-end infrastructure, mandatory sourcing from small-scale industries and establishment of retail stores only in cities having population of one million or more.

On back-end infrastructure, the government is planning to highlight the condition of creating “additional” infrastructure. “The main reason why the government opened up the sector to FDI is only to create additional and state-of-art back-end infrastructure such as cold storage chains, this is because the back-end facilities now are not enough and the existing players will get an easy exit route if foreign retailers buy them out, leading to a real estate business of sorts,” a senior official told Business Standard.

The policy on 30 per cent mandatory procurement from micro, small and medium enterprises (MSMEs) could also change. The government might relax the condition that once the 30 per cent threshold is met, it can continue sourcing from the same supplier even if the total investment exceeds $1 million, keeping in mind quality consistency. The cap might now be changed to $2 million for three years, the official added.

The policy now states that at least 30 per cent of the value of procurement of processed products has to be sourced from domestic small industries, with total investment of not more than $1 million in plant and machinery. The government might also change the rider that retailers can set up outlets only in cities with more than a million population. The government had allowed 51 per cent FDI in multibrand retail in September 2012, amid a lot of political opposition.

Before the policy was passed, retail giants Walmart, Carrefour, Tesco and Metro had expressed interest in entering the market. After the policy was approved, with some stiff conditions, retailers refrained from putting in any money into the market. Last month, the Department of Industrial Policy and Promotion, under the ministry of commerce and industry, issued a four-page clarification. But that also failed to soothe investors’ nerves.