The Indian government has eased restrictions on foreign investment into the multi-brand retail sector, almost a year after opening initial reforms were introduced.
The amended rules clarify the size of the small industry that foreign operators will have to procure 30% of goods from. The new rules define small industry as companies that have invested no more than the equivalent of US$2m in plant and machinery.
The valuation refers to the supplier’s size at the time of first engagement with the retailer and will remain “small industry” even if as a result of its relationship with the retailer it outgrows the $2m valuation.
“The amendment … in respect of small industry will bring in a balance between the business exigencies of the multi-brand retail trading entity and [the] 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 Indian government said in a statement.
Of the initial mandatory investment of US$100m, 50% of it will be invested in back-end infrastructure including processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage and warehouses. Investment in land and rentals will not be counted towards back-end infrastructure.
“The government is showing really positive intentions,” Kumar Rajagopalan, CEO of lobby group Retailers Association of India told Bloomberg TV. “The state governments now have to go forward and invite the companies to come and invest.”