Govt clarifies: Mandatory for multi-brand retail hopefuls to create greenfield back-end infra

Written by ENS Economic Bureau | New Delhi | Updated: Jun 7 2013, 14:29pm hrs
RetailGovt clarifies: Mandatory for multi-brand retail hopefuls to create greenfield back-end infra. (Reuters)
Foreign retailers keen to enter the Indian multi-brand retail sector will have to create new back-end infrastructure and put in 50 per cent investment in greenfield assets to comply with the foreign investment policy on retail. The government on Thursday clarified that investments in existing back-end infrastructure or acquiring supply chain would not be counted towards the investment requirement.

However, clarifications including sourcing restriction among group companies, and requirement of 50 per cent investment in back-end within three years of first FDI tranche are still being considered by the government. The clarification, experts say, will most likely send the retailers back to their drawing boards for reworking their strategy.

According to the clarifications issued on the FDI policy on the multi-brand retail sector, entire investment in back-end infrastructure has to be an additionality. Further, the companies would also not be allowed to supply the back-end services to franchisees run by its partners.

The retailers, however, will be able to set up such infrastructure in even in the states, which have not allowed the multi-brand retail in their jurisdiction, the clarification issued by the department of industrial policy and promotion (DIPP) said.

Global retailers including Walmart, Carrefour and Tesco had earlier sought clarity from the government on a number of issues, including mandatory sourcing and back-end infrastructure requirements.

The government, however, made it clear that the foreign retailers would not be allowed to indulge in wholesale trade (business-to-business) or run operations through franchisees. The multi-brand retail trading (MBRT) store set up will have to be company owned and company operated. Due to these conditions, experts feel, retailers may temporarily develop cold feet.

Though few clarifications are welcome, a few of them are not very friendly. The policy amply clarifies the intention of the government of creating a network of back-end infrastructure. Restricting the MBRT entity to only retail trading activities and the sourcing also for only retail trading may become suffocating for the retailers, Akash Gupt, executive director, PwC, said.

A company official said that the clarification will certainly delay the India entry and is likely to make companies more apprehensive. The official added that it will be difficult to draw plans that comply with the given the conditions. The companies will have to come up with something really innovative to fit into the conditions, which are India-specific.

SUPPLY CHAIN

* Foreign multi-brand retailers would need to invest 50% in greenfield back-end infrastructure

* Acquisitions or investment in an existing set-up would not qualify under the norms

* Retailers can set up back-end infrastructure even in states that have not allowed multi-brand stores in their jurisdiction