End of policy paralysis: Govt approves 51% FDI in multi-brand retail

After battling stiff opposition, government Friday allowed 51 percent foreign investment in multi-brand retail but left it to the states to permit global retailers open stores.

New Delhi: After battling stiff opposition, government Friday allowed 51 percent foreign investment in multi-brand retail but left it to the states to permit global retailers open stores.

It has also tweaked the sourcing norms for FDI exceeding 50 percent in single brand retail, requiring foreign firms, which want a relaxation of the 30 percent procurement norms, to set up manufacturing facilities in the country.

After considering various aspects and discussions with various stakeholders and states, it has been decided to go ahead with the decision to allow 51 percent FDI in multi-brand retail, Commerce and Industry Minister Anand Sharma told reporters after the Cabinet meeting chaired by Prime Minister Manmohan Singh.

"The response has been a mixed one but the UPA had tried to evolve a consensus," he said.

The cabinet had in November last year approved 51 percent FDI in multi-brand retail but had to put it on hold due to opposition from political parties, including UPA ally Trinamool Congress.

Sharma also reiterated that foreign retailers planning to enter the multi-brand segment would have to invest a minimum of USD 100 million with 50 percent of it in rural areas.

The Minister said the firms will also have to source 30 percent of their products from Micro and Small & Medium Enterprises where FDI is 51 percent and above.

Under the norms, 50 percent of total investment will have to be invested in 'backend infrastructure' within three years of the induction of FDI.

"As far as the urban areas are concerned, they will be allowed to open stores only in cities with a population of more than one million, while in the case of hilly states, it will be up to the respective state governments," Sharma added.

For single brand, the Cabinet decided that any firm seeking waiver of the mandatory 30 percent local sourcing norms would have to set up a manufacturing facility in the country, the minister added.

This will help, in particular, foreign watch makers and textile manufacturers who want to enter India on their own, he added.

Swedish retailer IKEA, which planned to invest Rs 10,500 crore in India, had sought relaxations in clauses related to the 30 percent sourcing norms from small and medium units.

In November last year the government approved 51 percent FDI in multi-brand but was put on hold.

The notification for implementation of the decision is expected by the end of this month.

The decision paves way for global retail giants WalMart, Carrefour and Tesco to open retail stores in India under their own brands.

At present WalMart has a 50:50 cash and carry joint venture with Bharti Group, while Carrefour runs wholesale stores. Tesco, on the other hand has a tie-up with the Tata group and supports the Indian firm in the running of Star Bazaar chain of retail outlets.

Welcoming the development, Future Group founder and CEO Kishore Biyani said: "FDI in multi brand retail is a welcome step. It will help in creation of more job. People will realise it is a win-win for all".

Expressing similar views, Bharti Enterprises Vice Chairman and Managing Director Rajan Bharti Mittal said: "This is a landmark decision in India's economic reforms process. Development of organised retail in India will bring immense benefits to stakeholders across the value chain - from farmers to small manufacturers and above all to consumer".

Ernst & Young Partner Paresh Parekh said the move is one of the boldest steps and both global and domestic retailers will be going back to drawing boards to explore joint ventures.