Multi-brand FDI: Walmart, Carrefour & Tesco may soon open stores in India subject to stringent investment norms

NEW DELHI: Multinational retailers such as Walmart, Carrefour and Tesco may soon be allowed to open stores in India subject to stringent investment norms, sourcing conditions, and cap on number of outlets in big cities. The Department of Industrial Policy and Promotion, or Dipp, is likely to move a proposal seeking cabinet approval for 51% foreign direct investment ( FDI) in multibrand retail subject to a minimum investment of $100 million.

In a bid to counter possible political opposition to the move, the proposal gives state governments the final say on whether they wish to have front-end retail stores in their states.

"A draft framework has been prepared keeping adequate safeguards to protect small shopkeepers, and to ensure that FDI actually helps in development of back-end infrastructure," a senior Dipp official told ET on condition of anonymity. The department has circulated a draft framework to a committee of secretaries, which will fine-tune it before a final cabinet note is moved.

The move comes a week after an inter-ministerial group, chaired by chief economic adviser in the finance ministry Kaushik Basu, endorsed opening up the sector to FDI. India, at present, allows 51% FDI in single-brand retail and 100% in wholesale cash-and-carry. The draft framework prepared by Dipp proposes at least half of the foreign investment in multibrand retail projects should be in back-end infrastructure.

Multinational retailers will have to file a statement of account with the RBI and Foreign Investment Promotion Board showing the investment in back-end functions.

Proposals address states' concerns

"The government is very clear that FDI in multi-brand retail should create large-scale employment and bring quality investment into the country leading to development of back-end infrastructure," the official said. According to industry estimates, lack of cold chains leads to a loss of about 40% of the country's farm produce, or Rs 50,000 crore, every year.

For easier monitoring, the government will also allow back-end infrastructure to be executed through a dedicated entity. Multi-brand retail stores would be required to source at least 30% of their products, including food items, from small and medium enterprises, according to the draft framework.

These stores will be allowed only in cities with a population of more than 1 million. The permissible area could include up to 10 km of eligible urban agglomerations. At least 30% of the turnover of these ventures will have to come from small traders through wholesale cash-and-carry stores set up for the purpose.

In order to address concerns of some states that multi-brand FDI will muscle out local shops, the draft framework proposes powers to state governments to impose additional conditions on MNC retailers, such as measures to integrate 'kirana' or local retailers into the value chain.

Multinational retailers, such as Walmart, Carrefour and Tesco, have been lobbying for entry into the country's $400-billion and fast-expanding retail industry. But they have faced stiff opposition from the BJP and Left who argue that organised retailers will hurt the livelihood of small shopkeepers and traders.

However, industry experts say opening up of the sector is crucial.

"This first step is very important and we hope we derive more benefits in years to come," said Akash Gupt, executive director at PricewaterhouseCoopers. "The policy will open up in a calibrated manner."

Dipp had put out a discussion paper in July on opening up of multi-brand retail, sans any cap on FDI. It later constituted a panel of officials to examine responses to the paper and make suggestions. This panel refrained from making any recommendations and called for wider consultations on the issue.

In a meeting on inflation chaired by Prime Minister Manmohan Singh in January, Cabinet Secretary KM Chandrashekhar had recommended FDI in multi-brand retail as a measure to fight inflation. He had also favoured FDI with a minimum investment of Rs 500 crore.