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”.

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”.

New Delhi is still considering sourcing restrictions, including the requirement that 30% of products are sourced from “small industries”.  

Click here to view the clarification document.