Panel nods tough riders for retail FDI

The Union government's committee of secretaries (CoS) on foreign direct investment (FDI) in multi-brand retail has put a number of tough conditions.

The CoS had earlier approved in principle the proposal to allow up to 51 per cent FDI in the sector.

Now, the conditions it has decided 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 panel will now prepare a note for clearance by the Cabinet Committee on Economic Affairs, the final decision-making body on this issue.

A top official in the Department of Industrial Policy & Promotion (Dipp), which spearheaded the changes at the CoS, said: "Most of the points we listed as conditions have been accepted by the CoS."

Another Dipp official said the only contentious issue was whether the cap should be 49 per cent or 51 per cent.

"This issue was resolved as the finance ministry was of the opinion that it should be the same as for single-brand retail," he said.

Dipp had suggested a minimum FDI of $100 million (Rs 450 crore). It said foreign retail outlets should be allowed only in cities with more than a million people, based on the 2011 census.

There are 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.

Earlier, some ministers wanted to start with the top six cities based on population.

Other riders

Another significant move is investment in back-end infrastructure. 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.

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 would also be required to source at least 30 per cent manufactured items - in value terms - from small and medium enterprises, it said.

There would also be a provision under which the state governments would be able to bring small retailers within the value chain. Adherence to these conditions would be monitored by the respective state governments too.

However, a major stumbling block is the stand of many state governments. Those ruled by the Bharatiya Janata Party have opposed the move. So has the Trinamool Congress, which rules West Bengal.