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Government eased the Norms for FDI in Multi-Brand Retail

Aug 2, 2013 15:00 IST

The Union Government of India on 1 August 2013 relaxed the norms for Foreign Direct Investment (FDI) in the multi-brand retail. The government also raised the FDI caps in different sectors increasing the cap in telecom sector to 100 percent. The decision was taken to attract more investments in retail and provide more clarity and space to the investors.

As per the decision made on the FDI, the government has made it mandatory for the multi-brand retailers like Tesco and Walmart to source 30 percent of their products from the small and medium enterprises of India only at the time of starting the business. The norm of 50 percent investment in the back-end infrastructure for the retailers will be applicable, only during the first tranche of investments (within three years) of up to 100 million dollars.

Amendments Done

Sector

Norms mentioned in September 2012 notification

Norms mentioned in August 2013 Amendment

Back-end Infrastructure

50% investment within three years

Investment of 50% of the funds they bring in back-end infrastructure only in respect of the mandatory 100 million dollar that they bring in for the first time.

Sourcing from Indian SMEs

Purchase 30% of the production of their total products by the small-scale industries.

Mandatorily purchase 30% of what they sell in India.

Access to cities

53 urban centers with a minimum population of 1 million people.

Right to grant permission for FDI in any city transferred in the hands of State Government.


The Government also decided to put FDI up to 49 percent in the single retail-brand under the automatic route, beyond which the investments would be routed through Foreign Investment Promotion Board (FIPB). In single-brand retail, FDI up to 49 per cent will be under the automatic route and beyond that through the Foreign Investment Promotion Board, FIPB route. In basic and cellular services, FDI has been raised to 100 per cent.

No decision was made on FDI cap in defence sector as it remained unchanged at 26 percent, higher limits of foreign investments in state-of-the-art technology manufacturing would be considered by the Cabinet Committee on Security.

The Government also allowed the global chains to come up with their stores in smaller cities by lifting up the restriction that the supermarkets can be developed in 53 urban centers with a minimum population of 1 million people.

The Government has also widened the definition of small by modifying the units with investments on plant and machinery of up to 12 crore rupees (2 million dollar) against 1 million that was defined earlier. The widened definition will now also include the medium enterprises and co-operatives from which it will be mandatory for the foreign multi-brand retailers to purchase 30% of what they sell in India. The decision has also marked that the condition of retailers’ engagement with the supplier will be applied only during the first time engagement, ensuring that it is able to retain its vendors that exceed the $2-million threshold.

It was also decided that the goods procured from the agri and farmer cooperatives that will be counted as small firms for meeting mandatory-sourcing conditions, would also be counted towards the 30 percent compulsory local sourcing requirements.

During the same meet at New Delhi, the Union Government also cleared 10 percent disinvestment of the Indian Oil Corporation that would fetch about 3750 crore rupees to the exchequer.

A comprehensive definition of the term control for corporate deals involving foreign companies was also approved by the Government during the same meet. Earlier, the definitions were approved by an inter-ministerial meet that was chaired by the Prime Minister, Manmohan Singh on 16 July 2013 following the recommendation of the Arvind Mayaram Committee.


Union Cabinet approved 51 per cent Foreign Direct Investment (FDI) in Multi-brand Retail

Proposal for 51 percent FDI in multi-brand retail and 49 percent in Aviation passed

Is this article important for exams ? Yes47 People Agreed

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