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Tesco seeks changes in retail FDI sourcing norms, promises to invest in India

NEW DELHI: Britain's largest supermarket chain Tesco Plc has lobbied with the government for change in certain conditions for multi-brand retail, and promised to consider investments in India in a few months. In his meeting with commerce and industry minister Anand Sharma, Tesco Plc's chief executive officer Philip Clarke sought some relaxation in the 30 per cent mandatory sourcing from small industry and clarification on investment in back-end infrastructure, sources told ET. "There will be important points of clarification in months ahead and then you will hear more from us then," Clarke said talking to reporters after meeting Sharma in New Delhi on Friday. 

Tesco wants its purchases from farmers to be included in the 30 per cent mandatory sourcing from micro and small enterprises, a condition the department of industrial policy and promotion (DIPP) will find difficult to relax. Tesco also wanted clarity on whether expenditure on buildings will be considered a part of back-end infra investment, a condition the government could consider favourably. "We cannot consider farm purchase as a part of the mandatory 30 per cent sourcing from MSME as there is no manufacturing taking place. This is not what the multibrand 
FDI policy says," a senior DIPP official told ET. "On the back-end investment issue, we do not have an objection. How can you have a warehouse without a building," the official said. 

The government allowed 51 per cent FDI in multi-brand retail in September last year, but imposed many conditions on such investment. One of these conditions is that at least 30 per cent of the value of products purchased will have to be sourced from Indian 'small industries', defined as one with total investment in plant and machinery not exceeding $1 million. The government has relaxed this sourcing requirement from micro, small and medium enterprises for single brand retail. It said that such sourcing should be preferably from MSMEs, but no such relaxation was given to the multi-brand retail sector.

Clarke has specially flown on Friday from the UK to meet Sharma to seek clarifications on a number of conditions for global supermarket chains to invest in India. "I am pleased with the meeting and we are assured. I will need the important points of clarification and then we would be hearing more from us," Clarks said without elaborating on what clarifications and assurances he received from the minister. Clarke was accompanied by Noel Tata, managing director for Tata International,Harjeet Drubra, Asia Finance Director for Tesco and a top ranking official of Tata-owned Trent. 

Tesco has a sourcing and technological partnership with the Tata Group's Star Bazaar hypermarket chain. "You will find a welcoming environment when you come to invest in India. If any clarification is required, that will be given," Sharma told Clarke, according to the statement issued by his ministry. Multi-brand retailers, including 
Wal-MartStores Inc, Carrefour SA, are seeking clarity on riders, including $100 million upfrontinvestments cap with 50 per cent of the investment in logistical infrastructure in three years of its entry as well as a mandatory 30 per cent sourcing from local from small enterprises. 

Earlier this week, Sharma has told ET that global supermarkets seeking to invest in India must pledge to make fresh $50 million investment in back-end infrastructure and not acquire existing supply chain and logistics of existing Indian companies. These are the some points Clarke would like to clarify from the minister, a source had told ET before the meeting.