India's Cabinet approves amendment to FDI Policy in MBRT

02 Aug '13

3 min read

India’s Cabinet has approved the proposal for amendment in the existing foreign direct investment (FDI) Policy in Multi-Brand Retail Trading (MBRT).

The Cabinet has approved amendment in para 6.2.16.5(1) - (iii), (iv) and (vi) of ‘Circular 1 of 2013 - Consolidated FDI Policy’.

The amended para (iii) on backend infrastructure, now reads: “At least 50% of total FDI brought in the first tranche of US$ 100 million, shall be invested in ‘backend infrastructure’ within three years, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units.”

For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc.

However, expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. Subsequent investment in the back-end infrastructure would be made by the MBRT retailer as needed, depending upon his business requirements.

The amended para (iv) pertaining to 30 percent sourcing from small and medium enterprises, reads: “At least 30% of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian micro, small and medium industries which have a total investment in plant & machinery not exceeding US $ 2.00 million.”

This valuation refers to the value at the time of installation, without providing for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a ‘small industry’ for this purpose even if it outgrows the said investment of US$ 2.00 million, during the course of its relationship with the said retailer.

Further, sourcing from agricultural cooperatives and farmers cooperatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

The amended para (vi) on setting up of retail outlets in cities, says, “Retail sales outlets may be set up only in cities with a population of more than 10 lakh (1 million) as per the 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities.”

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