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FDI Policy on 50% investment in back-end infrastructure
Jun '13
The Ministry of Commerce and Industry, Government of India, has issued a statement clarifying certain points related to 50 percent investment in back-end infrastructure under its foreign direct investment (FDI) policy on multi-brand retail trading (MBRT).
As per the statement, new retail entity to be set up as part of the FDI Policy cannot acquire supply chain/back-end assets or stake from an existing company having such assets and such assets /stake values will not be counted towards the back-end investment requirement. The statement says, “Entire investment in back-end infrastructure has to be an additionality. The entity can invest only in greenfield assets and it will not be possible to acquire supply/chain/backend assets or stakes from an existing entity.”
Secondly, the Ministry has clarified that any investment or equity stake less than 100 percent in a company engaged in development of back-end infrastructure will not be considered part of the investment in back-end infrastructure, even if one can certify its use towards back-end capacity. “Such investment in the equity of the existing infrastructure company will not be treated towards the fulfillment of the conditionality of 50% investment in back-end infrastructure,” says the statement.
The statement said FDI in back-end infrastructure for storage, warehouses, agriculture produce infrastructure, etc. is currently allowed throughout the country, including in non-FDI approved states. For MBRT, however, FDI in non-FDI approved states in backend infrastructure will be counted provided it is an additionality, it adds.
The Government has made it clear that as per the conditions for wholesale cash & carry trading, new retail entities cannot supply back-end services like logistics supply to its own businesses and other businesses. It said both the businesses have to be kept separate through different entities.
As regards supplies by MBRT company to franchisees run by its partners, the statement clarifies that the policy envisages multi-brand trading in retail. The MBRT entity is not envisaged to undertake wholesale activity i.e. B2B. The front-end stores set up by MBRT entity will have to be ‘company owned and company operated’ only.
Further, a company operating in wholesale trading/ cash & carry trading would not be considered as a company providing back-end infrastructure in efficiently distributing the goods to the small retailers and professional/ business users. “FDI in MBRT will require fresh investment in back-end infrastructure,” it states.
Lastly, the minimum investment of 50 percent of the total FDI in back-end infrastructure can be made across all states irrespective of the fact whether FDI in MBRT is allowed in that state or not. The Ministry has clarified that it is not mandatory for the 50 percent investment in back-end infrastructure be in the same state where the retail store is proposed to be set up.

Fibre2fashion News Desk - India

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