FDI Notification: Backend Infrastructure Excludes Rentals / Real Estate + Negative for E-Commerce

The The Government of India swiftly notified its decision to allow 51% FDI in multi-brand retail. The industry department has clarified that both single-brand and multibrand retail companies have to meet the 30% local sourcing norm at an aggregate level in their first five years in India and on an annual basis thereon.

Government Define BackEnd Retail Infrastructure and Investment Limits
Minimum amount to be brought in as FDI by the foreign investor would be USD100mn. At least 50% of the total FDI brought in shall be invested in ‘back-end infrastructure’ within three years (of the first tranche of FDI). ‘Back-end infrastructure’ will include capex on processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc. However, expenditure on land cost and rentals, if any, will not be counted as ‘back-end infrastructure’.

Why is the FDI Notification Negative for e-commerce companies ?
The Government has prohibited any FDI in e-commerce across multi-brand and single-brand retail as e-commerce
sites do not have state boundaries, so state-wise rollout of chains is difficult to execute. As per the notification, ten States/Union Territories have agreed to allow FDI in multi-brand retail.

Self Certification of products and keep records for auditing
Fresh agricultural produce (fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products) may be kept unbranded. Foreign retail chains will be required to comply with self-certification. They also have to keep all records, duly certified by statutory auditors.

Excluding Real Estate investment within the ambit of $100 Mn is a great move as Government is Serious about making retailers invest in long term to fulfill the goals of food security of India. Overall, a positive for the sector and a Win-Win for domestic and foreign retailers as well.

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