Multi-brand retailers are against the Government proposal that mandates them to invest 50 per cent of every $100-million investment in developing back-end infrastructure. They say this clause should not be mandatory for subsequent investments.

To clear the air, the Commerce and Industry Ministry has called a meeting of 10-12 global multi-brand retailers to understand their concerns on the clause. The meeting will be held on June 27 before the Government issues a final modification on the 50 per cent investment clause.

According to the Government’s policy, at least 50 per cent of the foreign investment, excluding land costs, should be made in back-end infrastructure within a period of three years from the first tranche of investment. Back-end infrastructure would include investments made in processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market or produce infrastructure.

Investment basis

Incidentally, the Government has not made it clear in the recent clarification provided in FDI policy in multi-brand retail trade whether the mandatory investment of 50 per cent in back-end infrastructure would need to be on a cumulative investment basis or only on the minimum investment.

“A dozen multi-brand retailers have approached the Government, seeking clarity and modification the investment norms. If the economics does not work out, retailers will not invest in India. The objective of the policy is to get investment and not questions,” Diljeet Titus, Managing Partner, Diljeet Titus Associates, said.

“The Industry has represented to Government to restrict mandatory 50 per cent back-end investment requirement only to 50 per cent of the minimum investment of $100 million and not 50 per cent of the entire investment,” Paresh Parekh, Tax partner, Retail and Consumer Product, Ernst and Young said.

A Crisil report on retail also points out that current policy implies that of the minimum investment of $100 million, investments in the front-end and back-end infrastructure will have to be $50 million each.

“Our analysis shows that an investment of $50 million can support one million sq ft of front-end space, equivalent to 10-15 hypermarket or departmental stores. Whereas, the minimum specified investment of $50 million in back-end infrastructure can support a significantly larger front-end space of 15-18 million sq ft. Hence, we believe, that this clarification is important before retailers can firm up their plans for entering India,” the report notes.

>bindu.menon@thehindu.co.in

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