New Delhi: After powering ahead with the political decision of bifurcating Andhra Pradesh to create Telangana, the Centre is now looking to give reforms a push too in a bid to woo more investors. The Union Cabinet will discuss relaxing foreign direct investment (FDI) in retail policy on Thursday.
One of the measures that is likely to be discussed is allowing stores to be opened in cities with a population less than 10 lakh. The Cabinet has already cleared 100 per cent FDI in telecom, credit and courier services. Now a single window clearance is being proposed in areas where security is not an issue. The move will accommodate demands of global retailers such as Walmart and Tesco.
Prime Minister Manmohan Singh plans to meet exporters and importers soon to reassure them as FDI inflows have come down by a third in the last fiscal.
According to sources, the Department Of Industrial Policy & Promotion (DIPP) has moved a Cabinet note on capping the minimum investment in back-end infrastructure to $50 million; allowing global retailers to open stores in cities with population less than 10 lakh; allowing FIIs in the sector and removing ambiguity regarding sourcing from SMEs after a unit crosses the $1 million investment mark.
Although DIPP which deals with FDI related matters, has recently issued clarification on some of the issues, matters including sourcing restriction amongst group companies; need for 50 per cent investment in back-end infrastructure within three years of the first tranche of FDI still needs to be looked at.
"Clarity is also required on the need for 30 per cent sourcing from small industry. Whether sourcing from such small industry can be allowed towards fulfilment of this conditionality, if it outgrows, and if so, till what period?," a source said.
Micro, Small and Medium Enterprises Ministry has, however, opposed the DIPP's move to let multi-brand retailers continue sourcing items from small and medium units without a time cap even after crossing a minimum investment limit.
Earlier June, in a meeting with Commerce and Industry Minister Anand Sharma, Walmart, Tesco, Carrefour as well as Indian players including Bharti Retail and Trent, had sought relaxation in the FDI norms in the multi-brand segment.
They said the sourcing rules in multi-brand retail must be made similar to that of single-brand segment, and foreign firms be allowed to put only 50 per cent of the first tranche of the investment in back-end infrastructure.
The Cabinet may also consider allowing global chains to open multi-brand stores in cities with population less than 10 lakh.
As per the current FDI policy, foreign retailers are allowed to open stores only in cities with a million-or-over population. The conditions have been relaxed for hilly states such as Jammu and Kashmir and Assam.
As per the policy, 30 per cent of products sold by single brand retailers, where 100 per FDI is allowed, are to be preferably sourced from small and medium enterprises (SMEs). On the other hand, in multi-brand segment, it is mandatory for the company to procure 30 per cent from SMEs.
Although the government has permitted 51 per cent FDI in multi-brand retail about nine months back, no formal proposal has been received by the DIPP yet. The Cabinet is also expected to approve the decisions.
(With additional information from PTI)
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