The Indian government has moved to clarify the legislation that is being introduced to liberalise rules governing foreign direct investment in multi-brand retailers.
According to the FDI legislation, 30% of manufactured or processed goods must be procured locally from an Indian SME. In a statement, Indian authorities revealed the 30% threshold refers to the front-end store and insisted a foreign investor could not “engage in any other form of distribution”.
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Multi-brand retailers owned by foreign companies are also required to make fresh investment for back-end infrastructure, totalling 50% of the entire investment. The retailers would not be permitted to invest in the back end through M&A and will instead be required to develop greenfield assets, the government said. Wholesale trade cannot be treated as back-end investments, regulators added.
“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,” the clarification document highlights.
While the central government is shaping FDI policy, it has ceded a degree of control to individual states. Those that have opted in to the FDI policy will have the ability to “impose additional conditions”.
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New Delhi is still considering sourcing restrictions, including the requirement that 30% of products are sourced from “small industries”.
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By GlobalDataClick here to view the clarification document.
