Centre offers states space in retail stores

Giving a strong push to its reforms agenda that has been in a state of paralysis on the back of policy logjam and economic slowdown, the UPA government on Friday took a major step forward on opening up of domestic retail sector by finally operationalising 51% foreign direct investment in multi-brand retail sector. However, it left the decision on setting up the retail stores on the respective state governments.

Seeking to assuage concerns of foreign retailers such as Sweden’s IKEA, the Cabinet also tweaked certain norms relating to ownership of brand and mandatory 30% sourcing from small and medium enterprises for single- brand retail.

The twin reforms friendly decisions will enable global retail giants the US-based Wal-Mart Stores Inc, French retailer Carrefour, TESCO and Germany’s Metro AG to set up retail outlets across India, giving a much-needed boost to the overall economic sentiment.

The decision to allow FDI in multi-brand retail sector comes against the backdrop of huge opposition from government’s major allies, the Trinamool Congress and Samajwadi Party, which has been giving outside support to the government.

According to political experts, the move seems to be prompted by the government’s desperation to deflect attention from the coalgate scam following a damning CAG report that had undue benefits to the tune of `1.86 lakh crore to private firms due to allocation of 57 mines sans auction.

While the proposal to permit foreign retailers to invest in multi-brand retail had been approved by the Cabinet on November 24, it was later deferred due to strong resistance from Mamta Bannerjee and the government not being able to bring on board other allies also.

On multi-brand retail, the Cabinet has decided that retail outlets may be set up in those states that have agreed or agree in future to allow FDI under this policy.

Also, retailers will be allowed to set up outlets in cities with a population of more than 10 lakh as per 2011 census and covering an area of 10 km around the municipal/urban agglomeration limits of such cities.

In states and Union territories having cities with population of less than 10 lakh, retail outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 km.

Further, the policy on multi-brand retail stated that at least 50% of total FDI brought in shall be invested in backend infrastructure within three years of foreign investment coming into India. Back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure etc.

On single-brand retail, the Cabinet decided that any firm seeking waiver of the mandatory 30% local sourcing norms would have to set up a manufacturing facility in the country.

Swedish furniture retailer IKEA, which had announced in June to invest around `10,500 crore for opening 25 stores in India, had sought relaxations in clauses related to the 30% sourcing norms from SMEs.

India Inc cheered the decision to open up multi-brand retail sector with most industry captains giving a thumbs-up to it. “This is a landmark decision in India’s economic reforms process. Development of organised retail in India will bring immense benefits to stakeholders across the value chain - from farmers to small manufacturers and above all to consumers,” said Rajan Bharti Mittal, Vice-Chairman and MD of Bharti Enterprises.

“The clause for 30% sourcing from SMEs will still be a hindrance, but will have less impact for multi-brand retailers as they have a far wider range and sell multiple categories across price segments. It certainly is good news for current Indian players who would benefit from the infusion of capital and knowledge from their more experienced counterparts,” said Harminder Sahni, MD, Wazir Advisors.