India approves FDI in multi-brand retail trading with conditions

Indian Government has approved Foreign Direct Investment (FDI) in multi-brand retail trading, subject to specified conditions.
The following proposals have been approved:
(i) Retail sales outlets may be set up in those States which have agreed or agree in future to allow FDI in MBRT under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/regulations, such as the Shops and Establishments Act etc.
(ii) Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.
(iii) At least 50% of total FDI brought in shall be invested in ‘backend infrastructure’ within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.
(iv) A high-level group under the Minister of Consumer Affairs may be constituted to examine various issues concerning internal trade and make recommendations for internal trade reforms.

Other conditions/safeguards, approved by the Cabinet on 24.11.2012, would remain unchanged. The suspension of Government’s decision taken in the Cabinet meeting on 24.11.2011 to permit FDI up to 51% in MBRT, therefore, stands removed.

The respective State Governments administer the Shops & Establishment Act within their territorial jurisdiction. “Trade & Commerce within the State” is a subject allocated to the State Governments, under the Constitution of India. State Governments are also responsible for aspects ancillary to MBRT, such as zoning regulations, warehousing requirements, access, traffic, parking and other logistics. As such, the policy provides that it would be the prerogative of the State Governments to decide whether and where a multi-brand retailer, with FDI, is permitted to establish its sales outlets within the State. Therefore, implementation of the policy is not a mandatory requirement for all States.

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census (including an area of 10 kms around the municipal/urban agglomeration limits of such cities). On the other hand, States/ Union Terrritories, which do not have any city with a population exceeding 10 lakhs, but are desirous of implementing the policy, would have the flexibility to do so.

Thus, the revised condition gives primacy to the decision of the States in this regard, recognizing that the FDI policy constitutes, at best, an enabling framework for the purpose.

Adequate safeguards have been built into the policy, some of which have been further strengthened.

A three year timeframe has been fixed for setting up the back-end infrastructure, which includes capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. This condition will bind the foreign investors to invest in critical back-end infrastructure, which is a felt need across the country. It would also make the foreign investors accountable for proper implementation of the condition.

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