The much awaited news arrived on a Friday, hopefully, ending a
protracted controversy. The Indian Government opened its economy to
FDI in multi-brand retail on September 14, 2012, subject to
specific conditions. At the end of 2011, the Cabinet had approved a
proposal to introduce FDI in this sector which was rolled back due
to protests by numerous political parties. Following an exhaustive
consultative process with the state governments, the Government has
now re-introduced the proposal with certain modifications to
increase its acceptability to various stakeholders.
(a). Foreign investors can establish operations only in those
states which support FDI in multi-brand retail. As on date, certain
states including Delhi, Assam, Maharashtra, Andhra Pradesh,
Rajasthan, Uttarakhand, Haryana and Manipur support this move
to liberalize the sector.
(b). The retail outlets must be set up in cities with a
population of more than 1 million (as per the 2011 Census). In
states with no such cities, the outlets may be set up in the city
of choice, preferably the largest city. This is to ensure that the
impact of the proposal is contained to urban areas, without any
adverse impact on the rural areas.
(c). At least 50% of the FDI has to be for backend
infrastructure which includes capital expenditure on all
activities, excluding that on front-end units, land cost and
rentals. The Government has fixed a three year timeframe for
setting up the back-end infrastructure which will include
investment made towards processing, manufacturing, distribution,
design improvement, quality control, packaging, logistics, storage,
ware-house, agriculture market produce infrastructure etc.
(d). Minimum 30% procurement should be from Indian small
The nuances are still to be worked out. To that end, the
Government will constitute a high-level group under the Minister of
Consumer Affairs to study various issues concerning internal trade
and shall make suitable
The Government needed to give a fillip to reforms and by revoking
its end 2011 suspension in this sector has definitely sent a
positive signal by allowing multi-brand retail. Of course, the
discretion lies on the state governments for effective
implementation. The states will have to work together with all the
stakeholders and ensure that the reforms do not remain mere
rhetoric but are converted into reality, while balancing the
interests of the rural businesses. It will not be easy but is
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