Review of the Policy on FDI in Multi Branded Retail Trading

The Union Cabinet has approved the proposal for amendment for the existing policy on FDI in Multi Brand Retail Trading (MBRT). The highlights of the amended policy are described as below:

·                     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. 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.

·                     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.

·                     Sourcing from agricultural co-operatives and farmers co-operatives 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.

·                     Retail sales outlets may be set up only in cities with a population of more than 10 lakh 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 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.

·                     The amendment in the extant FDI policy relating to Multi-Brand Retail Trading in respect of 'small industry' will bring in a balance between the business exigencies of the MBRT entity and intent of the policy which is to extend the benefits of the FDI policy in multi-brand retail trading to a larger constituency of small industries. The amendment in the provision regarding 'back-end infrastructure' will give more clarity to the policy. The amendment to the provision regarding location of retail outlets will bring in parity in the policy as it is proposed to extend such dispensation to all States.

In addition, the government has decided to amend the provisions relating to FDI caps and routes in various sectors to stimulate the FDI inflows in the country thereby contributing to growth of investment, income and employment which are described as under:

Sector	FDI Ceiling		Route
	Existing	Proposed	Existing	Proposed
Petroleum & Natural Gas	49%	49%	Government	Automatic
Commodity exchanges	49%(26%FDI+23%FII)	49%(26%FDI+23%FII)	Government	Automatic
Power exchanges	49%(26%FDI+23%FII)	49%(26%FDI+23%FII)	Government	Automatic
Stock exchanges, depositories and clearing corporations	49%(26%FDI+23%FII)	49%(26%FDI+23%FII)	Government	Automatic
Asset Reconstruction Company	74%(FDI + Fll)	100%(FDI+FII)	Government	Up to 49% Automatic 49% to 100% Government
Credit Information Companies	49% (FDI+FII)	74%(FDI+FII)	Government	Automatic
Tea sector including tea plantations	100% (divestment  of 26% to Indian partner within 5 years)	100%	Government	Government
Single-brand product retail trading	100%	100%	Government	Up to 49% Automatic 49% to 100% Government
Test Marketing	100%	Para to be deleted	Government	Para to be deleted
Telecom Services ( including Telecom Infrastructure Providers Category-l)	74%.	100%	Up to 49% Automatic 49% to 74% Government	Up to 49% Automatic 49% to 100% Government@
Courier Services	100%	100%	Government	Automatic
Defence	26%	26%-No change $	Government	Up to 26%, no change i.e., through FIPB and CCEA if FDI exceeds Rs. 1200 crore.

Source: Cabinet Secretariat

Note: @    FDI up to 100% with 49% under automatic route and beyond 49% through FIPB route subject to observance of licensing and security conditions by

 licensee    as    well   as    investors    as   notified   by   the    Department   of Telecommunications (DoT) from time to time.

$    Fll through portfolio investment is not permitted.

Warm regards,

Dr. S P Sharma

Chief Economist

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PHD Research Bureau

PHD Chamber of Commerce and Industry

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