1. Govt Set to Ease Foreign Retail Norms
The government plans to dilute local sourcing norms and investment guidelines for foreign
retailers as well as give states the freedom to relax the minimum 10 lakh population threshold,
as it makes yet another attempt to woo global retail chains.
The UPA government had last year staked its survival over the issue of allowing foreign
supermarkets to invest in India, but has so far not been able to attract a single dollar from the
likes of Walmart, Tesco and Carrefour, which have been unhappy with the stringent entry norms
imposed on them. The government’s attempt to relax these norms, in the form of ‘clarifications’
issued a couple of months ago, had failed to assure foreign investors, and this is the second
time it is trying to address their concerns.
According to a cabinet note prepared by the Department of Industrial Policy and Promotion
(DIPP), the stipulation that foreign multi-brand retailers must purchase 30% of what they sell in
India from small vendors will remain. Retailers may Still Wait
But the definition of what constitutes ‘small industry’ is being enlarged. At present, small
industry, for the purpose of 30% local sourcing has been defined to include units with
investment in plant and machinery of less than $1 million. This ceiling will now be raised to $2
million, and purchases made from these units will continue to be considered as sourcing from
small vendors, even after their investment in plant and machinery outgrows the $2-million limit.
The cabinet note says the $2-million criterion will apply at the time of the first engagement
between the foreign retail chain and the vendor, but not for the entire duration of their
relationship. The government has also decided to include goods bought from agri cooperatives
and farmer cooperatives like Amul in the 30% compulsory local sourcing requirement.
A controversial provision of the multi-brand retail policy relates to the stipulation that 50% of
funds brought by foreign retailers must be invested in back-end infrastructure. The government
plans to partially relax this provision by confining the 50% back-end outlay requirement only to
the first $100 million brought in by foreign companies, and not to their total investment.
But this may not address the concerns of companies such as Walmart that have invested in the

2. back end through their cash-and-carry operations, and don’t want to commit fresh investment
again.
The government appears to have retained the clause that stipulates foreign retailers must invest
$100 million in new infrastructure facilities in the first three years, thereby discouraging mergers
and acquisitions in the sector. The new policy proposes to give state governments the freedom
to allow FDI-funded multi-brand stores in cities of their choice. The current policy said such
investment could only be in cities with population of over 10 lakh.
A senior executive of a retail company seeking foreign investment said the new provisions were
welcome, but added most foreign companies would await the results of the forthcoming
elections before making their moves. “I don't think anything will move on the ground till the
outcome of the state and general elections are known,'' he said.
The government also plans to provide relief to foreign single-brand retailers by allowing them to
sell multiple ‘trademarks’. This relaxation will, among others, benefit Marks and Spencer, the
British retail company that had been under the policy glare for selling multiple sub-brands in
India in one store. Meanwhile, DIPP has also moved the cabinet note on liberalised FDI ceilings
and norms approved last Tuesday by a meeting chaired by the prime minister.
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