Looks like Wal-Mart’s decision of putting India on the backburner has acted as a catalyst for regulators to re-look and revise their FDI regulations on Multi-Brand retail.
In September of last year, Government had opened up FDI in multi-brand retail, but it came with lot of riders. Government was expecting that even with those riders in place, many global multi-brand retailers would make a beeline to capture huge Indian market.
Unfortunately, that has not happened. No large well-know Global retailers made an entry into India, since opening up the sector. Infact, retailers like Wal-Mart recently seem to have taken decision to actually stop efforts they have been putting for last 5 years.
Taking all this into consideration, Government have made amendments to the existing FDI policy in Multi-Brand Retail Trading (MBRT) that will ease the passage for Global retailers for their entry into India.
Back-end Infrastructure Investment
When FDI in Multi-Brand retail was announced in September, the retailer had to invest 50 percent of all the money into back-end Infrastructure. In the new amendment, the 50 percent will be applicable only for the first tranche of USD 100 million. Thereafter, retailer will have to do it only on need basis and is not mandatory.
30% Sourcing of Goods From Small Enterprises
According to earlier norms, retailers had to source 30 percent of goods they sold from small enterprise, which had investment of upto USD 1 million. The new regulations have changed the definition of “small enterprises” and have now included entities that have investment of upto USD 2 million. More importantly, this threshold will count only during the first engagement. If the enterprise grows in size at later stage, retailer will still be able to source goods from them.
Additionally, sourcing from agricultural co-operatives and farmers co-operatives (Like Amul Co-Operative) would also now be considered in this category.
Location Restriction For Outlets
Another important change that Government has brought about is the restriction on where global retailers could open their outlets. Earlier, they could be opened only in cities with population of 10 Lakh (1 Million) or more. Though this rule remains, it is upto state governments to allow retailers to open their outlets even in smaller cities at their discretion.
The 3 amendments were the most contentious ones which global retailers were not happy with. With relaxation of these norms, Multi-brand retailers may once again rejuvenate their plans of entering into India.
What do you think of these amendment? are they enough?