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Department of Industrial Policy and Promotion circulates Cabinet draft note on easing retail FDI norms

NEW DELHI: With a view to accommodating some demands of global retailers such as Walmart and Tesco, DIPP has circulated the draft of a Cabinet note seeking views of different ministries to ease FDI norms in multi-brand segment.

According to sources, DIPP has sought views on capping the minimum investment in back-end infrastructure to $ 50 million; allowing global retailers to open stores in cities with population less than 10 lakh; allowing FIIs in the sector and removing ambiguity regarding sourcing from SMEs after a unit crosses the $ 1 million investment mark. 

Department of Industrial Policy and Promotion has requested all the ministries concerned including finance, consumer affairs and MSME to reply soon, the sources said. 

"The department would like to put the final note for consideration of the Cabinet this week," said a source. 

If the Cabinet does not take any view on the matter this week, "it will be considered only after the Monsoon session" as the issue is "politically sensitive", the source said. 

Although DIPP, which deals with FDI related matters, has recently issued clarification on some of the issues, matters including sourcing restriction amongst group companies; need for 50 per cent investment in back-end infrastructure within three years of the first tranche of FDI still needs to be looked at. 

"Clarity is also required on the requirement of 30 per cent sourcing from small industry. Whether sourcing from such small industry can be allowed towards fulfilment of this conditionality, if it outgrows, and if so, till what period?," they added. 

In a meeting with Commerce and Industry Minister 
Anand Sharma last month, Walmart, Tesco, Carrefour as well as Indian players including Bharti Retail and Trent, had asked for relaxation in the FDI norms in the multi-brand segment. 

They said the sourcing rules in multi-brand retail must be made similar to that of single-brand segment, and foreign firms be allowed to put only 50 per cent of the first tranche of the investment in back-end infrastructure. 

According to the sources, the draft note has also sought comments on allowing global chains to open multi-brand stores in cities with population less than one million. 

As per the current FDI policy, foreign retailers are allowed to open stores only in cities with a million-or-over population. The conditions have been relaxed for hilly states such as 
Jammu and Kashmir and Assam. 

As per the policy, 30 per cent of products sold by single brand retailers, where 100 per FDI is allowed, are to be preferably sourced from 

small and medium enterprises


 (SMEs). On the other hand, in multi-brand segment, it is mandatory for the company to procure 30 per cent from SMEs. 

Although the government has permitted 51 per cent FDI in multi-brand retail about nine months back, no formal proposal has been received by the DIPP yet.