Stiff riders for FDI in retail

The Union government’s Committee of Secretaries (CoS) on foreign direct investment

(FDI) had earlier approved in principle the proposal to allow up to 51 per cent FDI in multi-brand retail. Now it has added a number of tough conditions. These include minimum investment, limiting the presence of foreign retailers to a few cities and wide powers to state governments to decide if they want to allow such stores. There are also clauses to protect small-scale enterprises and local shops. The CoS has also approved a recommendation that 30 per cent sales turnover will have to come from small traders, either directly or through wholesale cash & carry units. The retailers will have to source at least 30 per cent manufactured items — in value terms — from small and medium enterprises.

The Department of Industrial Policy & Promotion had suggested a minimum FDI of Rs 450 crores. It said foreign retail outlets should be allowed only in cities with more than a million people, based on the 2011 census. While there were 35 such cities according to the 2001 census, the number in the 2011 census will be more. The consensus now emerging is that at least all state capitals be covered, if not cities with over a million people. The CoS has recommended that a foreign retailer making the investment can commission a separate entity to invest in back-end support by outsourcing the task. However, investing at least 50 per cent of the FDI in back-end infrastructure should be mandatory, it said.