FDI in retail: Clarifications on mandatory sourcing and back-end investment likely today

NEW DELHI: The government is likely to issue clarifications on mandatory sourcing and back-end investment in infrastructure in the FDI policy on multi-brand retail. “We will be issuing clarifications on Thursday... There were a series of clarifications sought,” said Saurabh Chandra, secretary department of industrial policy and promotion. The ambiguity in the policy has made foreign retailers jittery about entering India, which shows in the fact that there has been no application after the government allowed 51% FDI in multi-brand retail in September last year.

Foreign chains including Walmart and Tesco have asked the government to consider farm sourcing as part of the minimum 30% sourcing from the small enterprises. However, DIPP says only processed food products will be allowed as part of mandatory sourcing clause as it involves manufacturing.

Other clarification is likely to be the mandatory 50% investment in backend in infra in the greenfied projects. The government is likely to allow buildings to be considered as part of investment requirement. The DIPP will also clarify that the 51% FDI in multi-brand retail is a composite one that includes portfolio investment as well.

Another could be on foreign retailers to be allowed to source from SMEs if they grow into a bigger enterprise-in line with the budget announcement where medium enterprises would keep getting the tax benefit for another three years. This week the DIPP defined a group company, which would complicate matters for wholesale players like Walmart as they will no more be allowed to sell more than 25% of their sales turnover to their group company.

Walmart has asked DIPP to raise the restriction limit from 25%.