Government allows up to 51% FDI in multi-brand retail, 100% in single brand

NEW DELHI: In a big move, the government on Friday cleared the proposal to allow up to 51 per cent Foreign Direct Investment (FDI) in multi-brand retail. The government has allowed the FDI on the condition that states will be allowed to decide whether they want to opt for it.

Commerce Minister, Anand Sharma also announced 100% single brand FDI notification with the requirement of 30% local sourcing. "The move will attract investment, create employment," Sharma said.

"For FDI proposals beyond 51% in single brand retail, 30% sourcing from 'Small Industries' has been made mandatory," Cabinet Committee on Economic Affairs (CCEA) said. For multi-brand retail, CCEA said that 50% FDI brought in shall be invested in back-end infrastructure within 3 years of FDI induction.

Kishore Biyani, Chairman of Future Group welcomed the move. "We are hoping this time the government will stick to its decision (allowing FDI in multi-brand retail) because that is absolutely essential," he said.

"The decision to let individual states decide on whether they want it is a good decision. This should satisfy people who are opposing it. The industry is convinced once a few states implement it the others will see the benefits and definitely consider it as well," he added.

Echoing similar sentiment, Taina Erajuuri, Fund Manager, FIM Asset Management said, "This is a great news. I have been waiting for a long time and I had almost given up."

"Foreign investors were getting fed up with India because nothing was happening there. People would now feel more comfortable to see at least some of the reforms measures going through, " Erajuuri said.

The government had allowed 51% FDI in multi-brand retail in December last year, but the decision was kept in abeyance following widespread opposition from the allies and opposition parties.

Prominent industrialists had been emphasising the need for the government to pus key economic reforms, one of which was allowed FDI in multi brand retail.

The UPA II government ally Trinamool Congress expressed strong opposition on the government's decision. Opposition party BJP also called the FDI in retail as a "betrayal of people of country".

Retail stocks surged on market speculation that the government might finally allow foreign investment in the country's multi-brand retail sector.

The move would allow global firms such as Wal-Mart Stores to set up shop with a local partner and sell directly to consumers for the first time, a move which supporters say could transform the $450 billion retail market and tame inflation.

The moves follow a 12 percent hike in the price of heavily-subsidised diesel on Thursday night, which some analysts saw as the government signalling its intent to reinvigorate its long-stalled reform agenda.