Govt may tweak retail FDI norms to ease foreign chains' entry

The government is considering to tweak FDI policy in retail sector so as to allow global chains like Walmart, Carrefour and Tesco to open multi-brand stores in non-hilly cities with population less than one million.

Updated: Jul 02, 2013, 19:06 PM IST

New Delhi: The government is considering to tweak FDI policy in retail sector so as to allow global chains like Walmart, Carrefour and Tesco to open multi-brand stores in non-hilly cities with population less than one million.

Besides, the Department for Industrial Policy and Promotion (DIPP) is also looking at other demands of retailers to relax mandatory investment norm in the back-end infrastructure, sourcing conditions and definition of MSMEs.

"They (foreign retailers) want to open stores in cities with population less than a million. They are saying this is important to spread network and to make their business viable. We may have to approach Cabinet on few things," a senior official in the Commerce and Industry ministry said.

As per the current FDI policy, foreign retailers are allowed to open stores only in cities with a million-or-over population. The condition have been relaxed for hilly states such as Jammu and Kashmir and Assam.

In a recent meeting with Commerce and Industry Minister Anand Sharma, retailers have asked to relax FDI norms in multi-brand segment and have said that sourcing rules must be made similar to that of single brand and foreign firms be allowed to put only 50 per cent of first tranche of investment in back-end infrastructure.

"The DIPP is looking at all the demands of the retailers. The department may come out with some more clarifications," the official said.

Foreign retailers are also asking to relax mandatory sourcing clause for multi-brand retail and make it similar to single brand segment.

As per the current policy, 30 percent of products sold by single brand retailers, where 100 per FDI is allowed, are to be "preferably" sourced from small and medium enterprises (SMEs). On the other hand, in multi-brand segment, it is "mandatory" for the company to procure 30 per cent from SMEs.

On the definition of SMEs, Bharti Enterprises Vice-Chairman and Managing Director Rajan Bharti Mittal has suggested that "at the entry point it should be an SME but if it crosses the limit of USD 1 million (of investments), we should be allowed to continue sourcing from the same unit."

Although the government has permitted 51 per cent FDI in multi-brand retail about nine months back, no formal proposal has been received by the DIPP yet.

Meanwhile, DIPP today held the second round of consultations on the finance ministry's proposal to raise FDI cap in several sectors, including multi-brand retail, defence and telecom.

DIPP Secretary Saurabh Chandra after the meeting said that MSME ministry officials had been called to discuss the issue of raising FDI in multi brand to 74 per cent.
"They (MSME) are concerned with the sourcing conditions so they have sought time on that," he said.

Chandra said that officials of health ministry, pharmaceuticals department and financial services, mining ministry and economic affairs attended the meeting to discuss the finance ministry's proposal.

"Mines ministry has requested to consultations with the department of Atomic Energy. So we will be doing that. In all we intend to get views of all the ministries and departments soon and after that we will move forward," he said.

On the issues of FDI in existing pharmaceutical companies, he said the concerned department has given their views but the matter need more discussion as it is complicated.

The DIPP has raised concerns over spate of acquisitions of domestic pharma firms by multinationals. The DIPP has sought the intervention of the Prime Minister's Office on this matter.

Seeking to promote India as an investment destination, the Finance Ministry on June 18 favoured higher sectoral caps in almost all sectors including defence, multi-brand retail and telecom.

Virtually doing away with the 26 per cent ceiling, a committee headed by Economic Affairs Secretary Arvind Mayaram recommended that FDI limit be raised to 49 percent in almost all sectors through automatic route.

It has proposed raising the cap to 49 percent under automatic route in sectors like single-brand retail, existing pharma companies, power and commodity exchanges, PSU banks, tea plantation, print media, PSU petroleum refinery, asset reconstruction companies, stock exchanges, insurance, depositories and clearing corporations and satellite services.