Global retailers planning to enter India in the multi-brand retail sector will have to make fresh investments in back-end infrastructure and acquisition of supply chain or back-end assets from existing entities would not be allowed, the government has said.
The Department of Industrial Policy and Promotion (DIPP) was responding to queries from several retail majors on various issues, ranging from sourcing to investment in back-end infrastructure. The government is keen to attract investment in the sector, which was opened to foreign retailers despite stiff opposition. While there has been a major interest from retailers in the single brand retail space in India, the multi-brand sector has not seen any significant action even after over six months of allowing 51% FDI in the category.
“Entire investment in back-end infrastructure has to be an additionality. The entity can invest only in greenfield assets and it will not be possible to acquire supply/ chain/ back end assets or stakes from an existing entity,” DIPP said.
While back end investment in non-FDI approved states will be counted, the government has ruled that both the back-end facilities and the front-end retail entity will have to be completely separate and the multi brand retail trading entity will not be permitted to undertake any wholesale activity. The front end stores set up by the multi brand retail trading unit will thus have to be “company owned and company operated” only, the DIPP statement said.
In what might come across as a relief to UK-based Tesco, the government also clarified that the sourcing clause from ‘small industries’ would apply only to manufactured and processed products, keeping procurement of fresh produce out of the ambit. The world’s third largest retailer has a majority of its products comprising of fresh produce and groceries. The DIPP said investment towards back-end infrastructure can be made across all states, irrespective of whether FDI in multi brand retail is allowed in that state or not. Multi-brand retailing by way of e-commerce, however, will not be permitted, the DIPP said.
Similarly, back-end investment in multiple infrastructure companies will not be counted towards complying with the condition of investing 50% of the total investment into back end. However, DIPP has said the back-end entity may be 100% owned by the foreign entity as long as the condition of 50% of the total FDI brought has been utilized in the back-end “as an additionality.”
Addressing concerns over the 30% sourcing clause, DIPP said sourcing would be considered only with reference to the front-end store and no other form of distribution would be permitted. With foreign supermarkets mandated to source a minimum of 30% of inputs form ‘small industries’ with a maximum investment in plant and machinery at $1 million, a certificate issued by the District Industries Centre would be adequate authentication to confirm the status of the supplier as a ‘small industry’, the DIPP said.
The Department of Industrial Policy and Promotion (DIPP) was responding to queries from several retail majors on various issues, ranging from sourcing to investment in back-end infrastructure. The government is keen to attract investment in the sector, which was opened to foreign retailers despite stiff opposition. While there has been a major interest from retailers in the single brand retail space in India, the multi-brand sector has not seen any significant action even after over six months of allowing 51% FDI in the category.
“Entire investment in back-end infrastructure has to be an additionality. The entity can invest only in greenfield assets and it will not be possible to acquire supply/ chain/ back end assets or stakes from an existing entity,” DIPP said.
While back end investment in non-FDI approved states will be counted, the government has ruled that both the back-end facilities and the front-end retail entity will have to be completely separate and the multi brand retail trading entity will not be permitted to undertake any wholesale activity. The front end stores set up by the multi brand retail trading unit will thus have to be “company owned and company operated” only, the DIPP statement said.
In what might come across as a relief to UK-based Tesco, the government also clarified that the sourcing clause from ‘small industries’ would apply only to manufactured and processed products, keeping procurement of fresh produce out of the ambit. The world’s third largest retailer has a majority of its products comprising of fresh produce and groceries. The DIPP said investment towards back-end infrastructure can be made across all states, irrespective of whether FDI in multi brand retail is allowed in that state or not. Multi-brand retailing by way of e-commerce, however, will not be permitted, the DIPP said.
Similarly, back-end investment in multiple infrastructure companies will not be counted towards complying with the condition of investing 50% of the total investment into back end. However, DIPP has said the back-end entity may be 100% owned by the foreign entity as long as the condition of 50% of the total FDI brought has been utilized in the back-end “as an additionality.”
Addressing concerns over the 30% sourcing clause, DIPP said sourcing would be considered only with reference to the front-end store and no other form of distribution would be permitted. With foreign supermarkets mandated to source a minimum of 30% of inputs form ‘small industries’ with a maximum investment in plant and machinery at $1 million, a certificate issued by the District Industries Centre would be adequate authentication to confirm the status of the supplier as a ‘small industry’, the DIPP said.
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