FDI IF RETAILERS PROCURE 30% STUFF FROM SMALL INDUSTRY

SURAJEET DAS GUPTA & NAYANIMA BASU New Delhi, 18 November

Indian suppliers must be units with investment up to `1.25 cr, says draft before cabinet
recommendations on the draft note. Now, it is up to the cabinet to take a call, a senior DIPP official told Business Standard. Currently, FDI is not allowed in multi-brand retail, though 100 per cent foreign investment is permitted in the cash-andcarry wholesale business and 51 per cent in single-brand retailing. The new clause on sourcing from small industries was not part of the recommendations to allow FDI in multi-brand retailing cleared by the committee of secretaries (CoS) in July. The CoS recommendation did not include it because of concerns raised by the finance ministrys department of economic affairs, which felt it could lead to harassment of small industries by government inspectors. Back then, even the DIPP went along with the view that including the mandatory sourcing condition would not be compliant with Indias commitment under the World Trade Organisations agreement on trade-related investment measures. The sourcing clause, however, was reinserted in the current draft after concerns were raised by the ministries of agriculture, micro, small and medium enterprises, and the department of information & technology. They had concerns over the interests of farmers, the industries of food processing, electronics and textiles, and small and medium enterprises. In meetings to resolve these concerns, the ministry of agriculture suggested a provision be included for 60 per cent sourcing from low-income resources and poor farmers. Turn to Page 16

ultinational retailers such as Walmart, Tesco and Carrefour looking to open stores in the country may have to source almost a third of their merchandise from small Indian manufacturers as the government tries to make the opening of multi-brand retail to foreign players more politically palatable. The draft cabinet note for permitting 51 per cent foreign direct investment (FDI) in multi-brand retailing, which may go for cabinet approval as early as tonight, includes a new clause under which at least 30 per cent of the procurement of manufactured and processed products has to be from small industries. Even single-brand retailing, where FDI is proposed to go up from the current 51 per cent to 100 per cent, will also be subject to the same sourcing rules. The note also clearly defines the FDI investment floor, approval dynamics, geographical restrictions and the riders and conditionalities thereof. For the purpose of FDI in multibrand retail, the note defines small industries as units which have a total plant and machinery investment not exceeding $250,000, approximately `1.25 crore. This investment refers to the value at the time of installation, without providing for depreciation. However, if at any point, this valuation is exceeded, the unit will not qualify as a small industry for the purpose of the policy. How-

WHAT THE DRAFT SAYS

ON FDI IN MULTI-BRAND RETAIL Government permission for up to 51 per cent Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded The minimum amount fixed for a foreign investor is $100 million At least 50 per cent of the total FDI must be invested in back-end infrastructure At least 30 per cent of the procurement of manufactured and processed products should be sourced from small industry Compliance through self-certification. Investors need to keep all records Retail sale locations can be set in cities with more than one million population, based on the 2011 census The government will have the first right to procure agricultural produce ON FDI IN SINGLE-BRAND RETAIL Permission of up to 100 per cent FDI from 51 per cent at present Products to be sold should be of single brand only Products should be sold under the same brand name internationally Product retailing would cover only those brands which are branded during manufacturing The foreign investor should be an owner of the brand 30 per cent sourcing from small industries would be mandatory

The cabinet will now have to take a call p4

Traders ready for protest against retail FDI p4

Pantaloon shares surge on multibrand FDI hopes p4

ever, self-certification for compliance of this clause will be permitted and the government would undertake cross-checking if it wants to. The draft cabinet note on FDI in multi- and single-brand retailing has been prepared by the Depart-

ment of Industrial Policy and Promotion or DIPP after extensive consultations with various ministries. We are sending the cabinet note on both FDI in single-brand and multi-brand retail by late tonight. All major ministries have given their