The Government's long awaited 'big ticket' reform -- of allowing foreign direct investment (FDI) in multi brand retail - is likely to see the light of day soon, with the Union Cabinet likely to take up the issue next week.
The case for increasing the current 51 per cent cap on FDI in single-brand retail is also likely to be considered at the same time.
Allowing FDI in multi-brand retail would open the door for giant multinational retail chains such as Walmart to enter the Indian retail sector. Currently, Walmart has a joint venture with Bharti for wholesale ‘cash-and-carry’ stores.
The move had been delayed by strong political opposition from some quarters, which feared that the entry of foreign retail chains would kill the small Indian retailer.
According to sources, the plan is to issue the necessary orders within a month of the approval by the Cabinet. "So now you can expect a New Year gift for the foreign investors", a person familiar with the development said.
But the "gift" is likely to come with several strings attached.
Sources confirmed that the Cabinet nod was likely to come with several modifications to the recommendations made by the Committee of Secretaries (CoS) on the subject.
For example, the final guidelines for the FDI may ask for 30 per cent mandatory sourcing from small and medium enterprises (SMEs).
The definition of the SMEs may include domestic and global firms. It may be recalled that the CoS, in its meeting on July 22, said, "The condition that 30 per cent of value of manufactured items may be procured from the domestic SME sector, was not agreed to."
The Government is also likely to stipulate that in the case of agricultural produce, 60 per cent of the sourcing should be from low-income, resource-poor farmers.
Such farmers will be defined as those who are having less than 10 hectares of land.
The final guidelines may retain the recommendation of the COS regarding self-certification by the company in regard to 50 per cent of the total FDI proposed by an investor in back-end infrastructure, but with a condition that the Government may go for surprise checks.
The final proposal is also likely to give some detail about the definition of ‘back-end infrastructure.’ It may say that cost of land and the building for a retail store will not be taken as investment in the back end infrastructure. Earlier, it was not clear what could be considered as back-end infrastructure.
To soothe the concerns of the electronics sector, the final guidelines may impose a condition such as, "for the purpose of investment in the back end infrastructure, any investment made in the processing, manufacturing or distribution would be counted."
SINGLE-BRAND RETAIL
A senior Government official said that an increased FDI limit in single-brand retail may come with some riders. One of these could be mandatory 30 per cent sourcing from small and medium enterprises, as soon as the FDI limit exceeds 51 per cent.
The Government allowed FDI in single-brand retail in February 2006. Till May this year, a total of $92.1 million was approved, but actual inflow has been just $69.26 million.