India may allow the likes of Walmart and TescoÂ to come in without any of the conditions that have kept them away if their stake in the multi-brand retail venture is less than 50%, marking the biggest dilution in the retail FDI policy announced in September last.
The finance ministry has proposed that a foreign multi-brand retailer could be allowed entry without any condition if it does not hold a majority stake in the Indian venture, arguing that the current policy has failed to enthuse investors.
The proposal is likely to be discussed at the inter-ministerial meeting of bureaucrats that will deliberate on FDI reforms on Monday.
The current policy allows 51% FDI in the multi-brand sector subject to stiff riders including huge minimum investment in back-end infrastructure and mandatory 30% sourcing from local small and medium enterprises.
“There is a case for having an uncomplicated… simple policy,” a senior government official told ET. The finance ministry wants simple condition if FDI in a retail venture is not more than 49% and stiff riders for majority-owned ventures. If the proposal is accepted, it will provide a windfall for the domestic retailers that have been looking to divest stakes to multinational chains.
“This will help foreign capital flows into home-grown brands and even specialty retail such as pharmacies, electronics as the conditionalities in the current policy framework for multi-brand retail is more amendable to hyper market format,” Akash Gupt, executive director at PwC, said. A committee on FDI policy reform headed by economic affairs secretary Arvind Mayaram recently suggested that the investment limit in the retail sector be raised to 74% from the current 51%.
The United Progressive Alliance government had in September opened up the multi-brand retail sector, braving political opposition from inside and outside the coalition and even staked its survival. However, the stiff entry conditions and the fact that only 11 states and union territories have agreed to allow foreign-funded stores have proved to be a big deterrent.
An attempt by the department of industrial policy and promotion (DIPP), the administrative department for the FDI policy, to simplify the norms by issuing some clarifications has left both the domestic and foreign retailers equally disappointed.
Those supporting opening up of the multi-brand retail sector say it will benefit the farm sector in a big way through backward linkages.
Various sections within the government feel it has not been able to capitalise on its decision to open up the multi-brand retail sector by putting in complex conditions. (Source:ET)
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