Cabinet Decision

The Union Cabinet today approved the proposal for amendment in the existing FDI policy in Multi-Brand Retail Trading (MBRT) in para 6.2.16.5(1) (iii), (iv) and (vi) of `Circular 1 of 2013 - Consolidated FDI Policy.

a) Amendment in para 6.2.16.5(1) (iii) of `Circular 1 of 2013- Consolidated FDI Policy` to read as follows:

“At least 50% of total FDI brought in the first tranche of US$ 100 million, shall be invested in `backend infrastructure` within three years, 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. Subsequent investment in the back-end infrastructure would be made by the MBRT retailer as needed, depending upon his business requirements”.

b) Amendment in para 6.2.16.5(1)(iv)of `Circular 1 of 2013 - Consolidated FDI Policy` to read as follows:

“At least 30% of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian micro, small and medium industries which have a total investment in plant & machinery not exceeding US $ 2.00 million. This valuation refers to the value at the time of installation, without providing for depreciation. The `small industry` status would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify as a `small industry` for this purpose even if it outgrows the said investment of US$ 2.00 million, during the course of its relationship with the said retailer. Sourcing from agricultural co-operatives and farmers co¬operatives would also be considered in this category. The procurement requirement would have to be met, in the first instance, as an average of five years` total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis”.

c) Amendment in para 6.2.16.5(1)(vi) of `Circular 1 of 2013 - Consolidated FDI Policy` to read as follows:

“Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per the 2011 Census or any other cities as per the decision of the respective State Governments, 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”.

The amendment in the extant FDI policy relating to Multi-Brand Retail Trading in respect of `small industry` will bring in a balance between the business exigencies of the MBRT entity and intent of the policy which is to extend the benefits of the FDI policy in multi-brand retail trading to a larger constituency of small industries. The amendment in the provision regarding `back-end infrastructure` will give more clarity to the policy. The amendment to the provision regarding location of retail outlets will bring in parity in the policy as it is proposed to extend such dispensation to all States.

FDI conditions in multi brand retail now mandate backend infrastructure investment and sustained local sourcing obligations. Amendments require at least fifty percent of FDI in the initial tranche to be invested in back end infrastructure within three years, with back end defined to include processing, manufacturing, distribution, logistics, storage, warehousing and related capital expenditure but excluding land cost and rentals. At least thirty percent of procurement value of manufactured/processed goods must be sourced from qualifying Indian micro, small and medium enterprises, with small industry status fixed at first engagement and procurement measured as a five year average from the April of first receipt of FDI and thereafter annually. Retail outlets are limited to specified cities or as decided by States, within a defined radius and conforming to master plans with requisite facilities.