Amendments in FDI Policy India

FDI in MultiBrand Retail IndiaThe Government of India facing severe criticism for half hearted policy making with an intent of corruption has made the following amendments to the year old FDI Policy which still remains on paper and nobody is coming forward to invest on the basis of the same.

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 (earlier it was $1 mn). This valuation refers to the value at the time of installation, without providing for depreciation. The ‘small industry’ status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a ‘small industry’ for this purpose even if it outgrows the said investment of US$ 2.00 million, during the course of its relationship with the said retailer. Sourcing from agricultural co‐operatives and farmer co¬operatives would also be considered in this category (point raised by Tesco).

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. This implies Commercial Real Estate in Cities potentially open to MultiBrand Large Retail Outlets will Rise.

The clarifications don’t cover the point on acquisition of stake in Indian retailers and franchising. Therefore it is likely that the Government’s earlier position (purchase of stake in Indian retailing firms won’t be counted as front end infra) remain.

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