India relaxes FDI norms for multi-brand retail

The government Thursday further liberalised its foreign direct investment (FDI) policy for multi-brand retail to lure international retailers like Walmart, Tesco and Carrefour into the country.

The decision was taken at a meeting of the federal cabinet chaired by Prime Minister Manmohan Singh.

Talking to reporters after the cabinet meeting, Commerce Minister Anand Sharma said the government has decided to relax the policies related to mandatory sourcing, investment in back-end infrastructure and selection of cities.

Regarding mandatory sourcing from the small and medium enterprises, Sharma said the $2 million investment ceiling for identification of SME was required for at the time of engagement.

As per the earlier norms, it was mandatory for the overseas investors to source at least 30 percent of goods from SME, which has investment of less than $2 million.

There was ambiguity that what will happen if the investment of SMEs crosses $2 million.

Sharma said this investment limit would be application only at the time of engagement.

The government last year had opened the gates for multi-brand retail sector to foreign investors by allowing up to 51 percent FDI.

However, no foreign investment has taken place in the sector so far. Global retailers like Walmart, Tesco and Carrefour have been demanding further clarifications in the policy.

The government has also clarified the policy related to need for mandatory 50 percent investment in back-end infrastructure.

According to the minister, the required 50 percent investment in the back-end infrastructure would of the initial investment. Later on, the companies can take investment decision based on their business requirements.

Regarding the selection of cities, Sharma said the state governments would be allowed to chose the cities where no town was eligible as per the original regulation that has the ceiling of 1 million population.

Only 53 cities in India have more than 1 million population.