Govt may relax FDI norms for muti-brand retail tomorrow

Written by Press Trust of India | New Delhi | Updated: Aug 1 2013, 04:01am hrs
The government is likely to liberalise FDI norms for multi-brand retail tomorrow, a move that Finance Minister P Chidambaram expects will help attract first foreign investment in the sector.

According to sources, the Cabinet will take a decision on the matter at its meeting tomorrow, besides approving new rules liberalisation FDI in about a dozen sectors including telecom, defence, PSU oil refineries, commodity bourses, power exchanges, stock exchanges and clearing corporations.

On July 16, Prime Minister Manmohan Singh had announced liberal FDI norms for these areas.

Although the government has permitted 51 per cent FDI in multi-brand retail about 10 months ago, no formal proposal has been received by the DIPP yet. Retailers like Walmart, Tesco and Carrefour are demanding to ease norms.

"I think the Commerce Ministry is on the last leg of clarifying that policy. But clarifications should be issued, I am told, in the next few days. Once these clarifications are issued, I think you will find the first investments in FDI in MBR coming to India," Chidambaram had said this morning.

He said FDI in multi-brand retail has not yet come to India "but that is not to say (that) FDI has not come to India. Last year a significant part of the CAD is indeed financed by the FDI".

He added: "FDI in multi brand retail is being held back because there are some very pertinent questions on the policy and on the details of the policy."

The DIPP has moved a Cabinet note on capping the minimum investment in back-end infrastructure to USD 50 million; allowing global retailers to open stores in cities with population less than 10 lakh; allowing FIIs in the sector and removing ambiguity regarding sourcing from SMEs after a unit crosses the USD 1 million investment mark.

Although the Department of Industrial Policy and Promotion (DIPP) has recently issued clarification on some of the issues, matters including sourcing restriction amongst group companies; need for 50 per cent investment in back-end infrastructure within three years of the first tranche of FDI still needs to be looked at.

Further, according to sources, the Cabinet Committee on Economic Affairs (CCEA) may take a final call tomorrow on the definition of "control" in mergers and acquisitions, especially those involving overseas companies.

"Clarity is also required on the need for 30 per cent sourcing from small industry. Whether sourcing from such small industry can be allowed towards fulfilment of this conditionality, if it outgrows, and if so, till what period," said a source.

The MSME Ministry has, however, opposed the DIPP's move to let players continue sourcing items from small and medium units without a time cap even after crossing a minimum investment limit.

Retailers are demanding that sourcing rules in multi- brand retail must be made similar to that of the single-brand segment, and foreign firms be allowed to put only 50 per cent of the first tranche of the investment in the back-end infrastructure.

The cabinet may also consider allowing global chains to open multi-brand stores in cities with population less than one million.