New Delhi, July 15
The Industry Ministry has proposed to allow foreign direct investment (FDI) in multi-brand retail trading or in simple terms large-format retail stores like Walmart in a calibrated manner with FDI to the extent of 51 per cent and these could be limited to larger cities with a population of more than 10 lakh.

The government is considering a proposal to allow FDI in multi- brand retail. The matter is being deliberated by a Committee of Secretaries to generate a preliminary consensus on the options available before taking it to the Cabinet for a final view.

According to the proposal, the minimum FDI to be brought in into a project would be $100 million.

While it is desirable to find means of integrating the small retailers into the upgraded value chain and providing them access to the logistics and supply chain set up by the FDI-funded retailers, this may be difficult to implement in practice. Further, the impact on the small retailers would vary from location to location. It has been proposed that the FDI policy is initially unfolded in larger cities and urban agglomerations.

State governments are best placed to assess the impact of this measure on small retailers, as also to take measures to mitigate any impact. It is proposed that stipulating a condition of setting up wholesale cash-and-carry outlets with FDI to sell mainly to small retailers could ensure integration of small retailers into the supply chain.

Front-end retail outlets will be set up only in states where the states agree to allow FDI in retail under this policy.

It is also stipulated that 30 per cent of the sales turnover should be made to small retailers, either directly or through wholesale cash-and-carry units set up for this purpose. State governments may put conditions for integrating the small retailers and kirana merchants in the value chain.

Also, at least 30 per cent of the value of manufactured items procured (excluding food products) should be sourced from the SME sector.

The respective state governments would put in place frameworks to monitor compliance with these conditions.

It has been proposed that FDI may be permitted to the extent of 51 per cent in a manner similar to the existing framework for single brand retail. The government has approved 59 single- brand retail proposals and these are mainly for high-end stuff such as fashion clothing, lifestyle products and includes the likes of Gucci and others.

At least 50 per cent of the total FDI proposed by an investor should be in back-end infrastructure. A statement of accounts would be filed with the RBI disclosing that this would not fall below the 50 per cent mark. Investments in back-end may not necessarily be made the same entity and it could be an outsourced entity.