Govt opens door to foreign retailers...Approves 51% FDI in multi-brand retail

The Union Cabinet on Thursday approved a proposal to allow foreign giants like Wal-Mart to enter multi-brand retail in the country. But the Centre’s move has drawn criticism from various opposition parties. In fact, even UPA allies like Trinamool Congress and DMK are apparently against the decision. In this context, Friday’s parliament session will be interesting after three days of near wash-out. The Cabinet has cleared up to 51% foreign direct investment (FDI) in multi-brand retail, and up to 100% FDI in single brand retail. At present, the Government allows up to 51% FDI in single brand retail, up to 100% in cash and carry (wholesale) business. FDI is not allowed in multi-brand retail currently. The Finance Ministry reportedly gave its consent to the draft Cabinet note on opening the multi-brand retail to foreign investment. The Department of Industrial Policy and Promotion (DIPP) had earlier circulated a draft Cabinet note to seek inter-ministerial views on the issue. Shares of retail companies like Pantaloon Retail, Provogue India and Shoppers Stop rose are yesterday on reports that the Union Cabinet will take up a proposal on allowing FDI in multi-brand retail besides considering increasing the FDI limit in single brand retail. The policy will allow foreign retailers to set up shop only in cities with a population of more than 10 lakh as per the 2011 Census. There are 55 such cities in India currently. Foreign investors will be required to invest up 50% of total FDI in back-end infrastructure, excluding the land cost and rentals. Retailers will need to source at least 30% of manufactured/processed products from small industries, excluding agricultural items. The Government has also retained the first right on sourcing agricultural produce. In terms of single-brand retail, the Government has made 30% sourcing from SMEs mandatory once the FDI limit exceeds 51%.