The Indian Government has recently liberalised the conditions relating to foreign direct investment (FDI) into the multi-brand retail sector (MBR) in India. The proposal to permit FDI of up to 51% in MBR with the prior permission of the Foreign Investment Promotion Board, subject to satisfaction of certain pre-conditions (MBR Policy), now stands approved.

While the Cabinet had earlier taken up and approved this proposal in November 2011, its implementation was kept in abeyance until a broader consensus on the subject could be evolved.

Changes aimed at improving existing infrastructure and supply chain efficiencies

It is expected that the requirement to invest at least 50% of the investment into back-end infrastructure would provide a much needed boost to the existing infrastructure facilities in the country and improve the supply chain efficiencies in the agricultural sector as well. The Government also seeks to integrate smaller manufacturers with MBR outlets through the requirement to source at least 30% of the retailed products from smaller industries.

Pursuant to the MBR Policy, FDI in the MBR sector is now permitted up to the specified limits and subject to the following conditions:

  • MBR outlets to be set up only in those states which have agreed (or may agree in future) to   implement the MBR Policy. Such outlets shall be established in compliance with the applicable   state laws, including the Shops and Establishments Act, zoning regulations, etc.
  • thus far, the states of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand,   Haryana, Manipur and Jammu and Kashmir and the Union Territory of Daman & Diu and Dadra and   Nagar Haveli have expressed support for the MBR policy. At the same time, Bihar, Karnataka,   Kerala, Madhya Pradesh, Tripura and Odisha have expressed reservations against such a move.
  • MBR outlets shall be set up only in cities (i) with a population of more than one million as per the   recently concluded 2011 Census; and (ii) within an area of 10 km around the municipal/urban   agglomeration limits of such cities. According to the 2011 Census, there are 51 cities with a   population of more than one million inhabitants.
  • additionally, locations for MBR outlets will be restricted to conforming areas as per the master/zonal   plans of the concerned cities and provision for requisite facilities such as transport, connectivity and   parking shall be made.
  • states which do not have cities that conform to the minimum population requirement may, however,   permit MBR outlets to be set up in any city covering an area of 10 km around its municipal/urban   agglomeration limits.
  • there shall be a minimum investment requirement of USD 100 million of which at least 50% shall   be invested in ‘back-end infrastructure’ for purposes like facilitating manufacturing, packaging,   distribution, creating storage and warehousing facilities, design improvement, quality control,   logistics, agriculture market produce infrastructure,etc.
  • investments for the development of back-end infrastructure is required to be completed within three   years of the foreign capital infusion and expenditure on land cost and rentals, if any, shall not be   counted for the purposes of back-end infrastructure.
  • a minimum of 30% of the products to be retailed in the MBR outlets should be sourced from Indian   micro and small businesses having a capital investment of not more than USD 1 million. This   investment refers to the value at the time of installation, without providing for depreciation.
  • fresh agricultural produce including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery   and meat products may be unbranded.

The above conditions/safeguards have been brought in by the Government pursuant to the discussions with the various stakeholders and to evolve much needed consensus on the matter. To date, MBR outlets have only been permitted in larger Indian cities in order to protect the smaller retail trading model prevalent in other areas.