The Indian FDI in Multi Brand Retail policy states that at least 50 per cent of the foreign investment , excluding land costs, should be made in “back end infrastructure” within a period of 3 years from the first tranche of investment.
Our analysis shows that an investment of USD 50 million can support 1 million square feet of front-end space, equivalent to 10-15 hypermarket or departmental stores. Whereas, the minimum specified investment of USD 50 million in back-end infrastructure can support a significantly larger front-end space of 15-18 million sq ft. Hence, we believe, that this clarification is important before retailers can firm up their plans for entering India.
Moreover, as per the clarifications, foreign retailers entering India will have to commit green field investments in both back-end and front- end for at least USD 100 million. This, we believe, will involve a lead time of two to three years for identifying appropriate store locations and rolling out back-end infrastructure before the retailer can start operations on a sizeable scale.