Indian Government moves Cabinet note to relax FDI norms

23 Jul '13

2 min read

In yet another attempt to lure foreign investors to invest in Indian retail sector through the foreign direct investment (FDI) route, the Indian Government is yet again planning to relax local sourcing and investment norms and has circulated a draft note in the Cabinet seeking views of various ministries on the issue.

The draft Cabinet note prepared by the Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI policy under the Ministry of Commerce and Industry, proposes to cap the requirement for investing a minimum 50 percent of the funds brought by foreign retailers during the first three years of their venture in the country in back-end infrastructure of the sector they are investing in, to US$ 50 million or only to initial investment of US$ 100 million, Business Standard reported quoting PTI.

Next, the note even proposes to relax norms regarding allowing foreign chains to start multi-brand outlets in cities with population of below one million and leave it to the discretion of state governments whether to allow FDI entry in their state or not.

Regarding the requirement of sourcing 30 percent of the products sold in Indian market from local small industries, the Government proposes to widen the definition of ‘small industry’ to include units with investment in plant and machinery to the extent of US$ 2 million from the current US$ 1 million.

The Government even looks forward to encourage foreign single-brand retailers by allowing them to sell multiple 'trademarks'.

Several overseas retailers including Walmart, Tesco and Carrefour, are seeking relaxations and clarification on the investment norms from Indian Government.

Bharti Retail, the Indian joint venture partner of Walmart, said it is awaiting clarifications from the Indian Government on FDI policy in multi-brand retail trading before moving ahead with its retail expansion plans.

The Indian Government allowed up to 51 percent FDI in MBRT last year. But so far, only 11 Indian states have given green signal to allow foreign retailers to open stores in their territories.

Earlier this month, the DIPP issued some clarifications pertaining to 30 percent sourcing from small and medium enterprises, and 50 percent investment in back-end infrastructure, in response to queries by global retailers.

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