Cabinet may Consider Proposal to allow 51% FDI in Multi-Brand Retail.

NEW DELHI: The cabinet will shortly consider a proposal to allow 51% foreign direct investment (FDI) in multi-brand retail, as the government finally musters the will to implement the controversial policy measure that has been stalled for years.

The commerce and industry ministry has prepared a note for the cabinet to allow 51% FDI in multi-brand retail and increase the limit on single-brand retail to 100% from the current 51%. "The proposal is expected to be taken up soon by the cabinet, possibly as early as next week," a government official told ET.

Transnational retail chains such as Walmart, Carrefour, and Tesco have been waiting impatiently for years to open their stores in India, and the move to open this sector will send positive signals to foreign investors.

Over the last few years, the government has allowed 100% foreign ownership in cash and carry operations and 51% FDI in single-brand retail, but lack of political consensus has so far kept foreign competition out of multi-brand retail. Opposition parties and some constituents of the UPA like the Trinamool Congress have argued that FDI in the $400-billion sector will throw small shopkeepers and traders out of business.

The industry ministry has included a number of sweeteners to soften political opposition to the proposal such as first right for the government to source from farmers, and mandatory sourcing from small enterprises to create support among certain segments.
These retailers will have to ensure at least 50% of total investment will have to be in 'back-end infrastructure'.

Ensuring back-end ifrastructure investment will be on a self-certification basis. The back end will not include investment in land or rentals. According to the proposal mooted by the industry ministry, each retailer will have to bring in at least $100 million.

To permit farm produce purchased directly from farmers to be sold through FDI-funded retailers, the proposal says fresh agriculture produce, including fish, meat and poultry, may be unbranded.

At least 30% of the procurement will have to be sourced from small industries, defined as those with investment of less than $0.25 million. Retail stores will be allowed to set up only in cities with population of more than 1 million according to the 2011 census.

"The other option on the agenda is to limit the rollout to the six metros initially," the official said, "or leave the decision to states whether they want to allow foreign retailers in their state." This will blunt any internal opposition to the proposal from the Congress' allies in the UPA government.

Source : economictimes.indiatimes.com