Dept of Industrial Policy & Promotion working on a Cabinet note

The Government may agree to ease entry norms, as demanded by retailers such as Walmart, Tesco and Carrefour. But it is sure to face political hurdles.

The Department of Industrial Policy and Promotion (DIPP) is ready to give in to retailers’ demand of limiting mandatory investment in back-end infrastructure to just the first tranche of investments brought in. But a favourable decision will not be easy as it will need to be ratified by Parliament, a senior DIPP official told Business Line.

Similarly, a decision on diluting the eligibility condition for small-scale sector suppliers to foreign retailers will also need Parliament’s nod.

Representatives from about a dozen foreign retail companies including Walmart, Tesco, Carrefour, Auchan and Metro met Commerce & Industry Minister Anand Sharma early this month to express their reservations about the policy in its current form and demand early changes.

Foreign investment in multi-brand retail is yet to flow into the country as retailers are still waiting for the policy to take a final shape.

“The changes that would be required in the FDI rules to accommodate the relaxation in conditions would amount to legislative changes and would need Parliament’s approval,” the official said.

With a number of political parties including the Left Parties and the BJP openly opposed to FDI in the retail sector and the SP and the BSP sitting on the fence, getting Parliamentary approval for changes in the retail policy favouring foreign retailers will not be a cake walk.

“Going by what is happening to the Insurance Bill and the Pension Bill, it would be too optimistic to assume that relaxations in the FDI policy for multi-brand retail would get smooth Parliamentary approval,” the official added.

The DIPP is working on a Cabinet note suggesting relaxation in investment norms for foreign investors in multi-brand retail. It has proposed that the mandatory condition of investing half of the minimum $100 million initial investment in back-end infrastructure be limited only to the first tranche of investment brought in.

The Cabinet note prepared by DIPP is also likely to propose that a small industry supplier (with capital investment lower than $100 million) can keep supplying to foreign retail chains under the 30 per cent compulsory sourcing clause after it outgrows the categorisation for three years.

Foreign multi-brand retail companies are mandated to source 30 per cent of their inputs from local small scale vendors.

(This article was published on July 16, 2013)
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