Tough norms to be axed to woo elusive retail FDI

Tough norms to be axed to woo elusive retail FDI

Cabinet Note: Move also aims at parity among cities,to protect small industries

In a fresh bid to attract global multi-brand retail companies to the country,the government has decided to relax norms for FDI in the sector,including dropping the condition that such firms can open shop only in cities with a population of at least 10 lakh.

A Cabinet note moved by the department of industrial policy and promotion (DIPP) has also proposed to ease norms about sourcing from small-scale enterprises and the investment criteria for back-end infrastructure.

The government hopes the sops will finally spark investments as no company has even applied for permission since it allowed 51 per cent FDI in multi-brand retail last September.

The department has argued that since states or union territories which do not have a city with a population of 10 lakh are not subject to the restriction that foreign multi-brand retail firms can set up shop only in cities of that size,or larger,states which have cities with a population of 10 lakh or more should also get the same opportunity.


“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 government,” says the DIPP’s revised Cabinet note on FDI in multi-brand retail trading.

“In order to bring parity,it is proposed to extend such dispensation to all states,which have agreed to implementation of the FDI policy,” the DIPP has said.

So far,states such as Delhi,Andhra Pradesh,Assam,Haryana,Himachal Pradesh,Jammu and Kashmir,Karnataka,Maharashtra,Manipur,Rajasthan and Uttarakhand,along with UTs such as Daman,Diu and Dadra and Nagar Haveli have endorsed the policy in its current form.

FDI norms at present also mandate that at least 30 per cent of the value of the procurement of manufactured or processed products should be sourced from Indian ‘small industries’,which have a total investment in plant and machinery not exceeding $1 million. If at any point in time the valuation exceeds the limit,the unit will not qualify to be a “small industry”.

In the revised note,this clause has been amended to include “medium-scale industries with a total investment not exceeding $2 million would also be made eligible for sourcing of manufactured or processed products”.

“Further,the present condition of making those industries which outgrow this status ineligible for fulfillment of mandatory local sourcing,would result in loss of business for such Indian small industries and would also discourage the retailers from developing a supply chain. It is thus proposed that this requirement would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify for this purpose even if it outgrows the investment of $2 million,during the course of its relationship with the retailer,” the note says.

Relaxing the condition that retailers should spend 50 per cent of the investment made by the foreign partner in the venture in back-end infrastructure,the DIPP note says this 50 per cent requirement would be applicable only to the first $100 million brought in by the foreign partner and not to their entire investment.


RESTRICTION on opening multi-brand retail stores in cities with population less than 10 lakh dropped. Global retailers can now set up shop anywhere.

STIPULATION that 30% of procurement must be from

Indian “small industries” with total investment of less than $ 1 million,revised to include “medium-scale industries with a total investment not exceeding $ 2 million”.

REQUIREMENT that foreign partners must spend 50 per cent of their investment in back-end infrastructure is now only for the first $100 million brought in by them,not for their total investment.