Day before the crucial day of TMC’s withdrawal of support to UPA2, DIPP formally notified FDI in retail in both the formats, multi brand retail and single brand retail.
Amendment of the existing policy on Foreign Direct Investment in Single-Brand Product Retail Trading suggests the following key changes done.
As per the notification “In respect of proposals involving FDI beyond 51%, sourcing of 30% of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain. This procurement requirement would have to be met, in the first instance, as an average of five years' total value of the goods 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.
For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of FDI for the purpose of carrying out single-brand product retail trading.” The sourcing time has been relaxed as cabinet has allotted five years to fulfill the 30 per cent local sourcing norm.
The definition of MSMEs, which according to the prior notification is “Small industries”, would be defined as industries which have a total investment in plant & machinery not exceeding US $ 1.00million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose. This remains unchanged in the amendment done on Thursday.
In the case of multi brand retail, FDI up to 51 per cent is officially allowed in the country with the state’s consent. The necessary guidelines provided in the notification are:
· Minimum amount to be brought in, as FDI, by the foreign investor, would be US $ 100 million.
· At least 50 per cent of total FDI brought in shall be invested in 'backend infrastructure'.
· At least 30 per cent of the value of procurement of manufactured, processed products purchased shall be sourced from Indian “small industries” which have a total investment in plant & machinery not exceeding US$ .1.00 million.
DIPP has also clarified that Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi brand or single brand retail trading.
With the hurdles being brought down, the biggest player in the field, WalMart is expected to open their first store in another 12-18 months. It would be interesting to see how the states react to this decision taking by the government. As of now most of the states are apprehensive to allow foreigner investors to compete with the local kirana stores. Alas the signal has turned green and the time has come where the consumers will get more options and retailers will find more competition.