Safeguarding the interest of concern of domestic industries multinational firms will have to procure 30% of their products from small and medium enterprises
For single brand retail where government has allowed 100% FDI, the multinational firms who do not want to stick to mandatory procurement from local firms, will have to set up their manufacturing units.
Earlier the issue of permitting FDI in multi-brand retail had been approved by the Cabinet in its meeting on November 24, 2011. However, implementation of the proposal was deferred due to strong opposition from the NDA and the estranged ally TMC. The then Finance Minister Pranab Mukherjee announced in Parliament to deferr the Government’s decision.
The Government then started the process for evolving a broader consensus on the subject. Discussions have been held with State Governments, representatives of consumer associations/organizations, micro & small industry associations, farmers’ associations and representatives of food processing industry and industry associations.
The Chief Ministers of Delhi, Assam, Maharashtra, Andhra Pradesh, Rajasthan, Uttarakhand, Haryana and Manipur Government and the Administration of Union Territories like Daman & Diu and Dadra and Nagar Haveli expressed their support for the policy in writing. The Chief Minister of Jammu & Kashmir, through his press statements, publicly endorsed the policy and asked for its implementation. However Bihar, Karnataka, Kerala, Madhya Pradesh, Tripura and Odisha Governments expressed their reservations.
During the consultations with the stakeholders, views for and against FDI in multi-brand retail trading were expressed. Some suggested implementation of the policy, subject to the introduction of adequate safeguards.
Finally, the Government approved that retail sales outlets may be set up in those States which have agreed or would agree in future to allow FDI in multi-brand retail under this policy. The establishment of the retail sales outlets will be in compliance of applicable State laws/ regulations, such as the Shops and Establishments Act .
The Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.
At least 50% of total FDI brought in shall be invested in `backend infrastructure` within three years of the induction of FDI, where ‘back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.
A high-level group under the Union Minister of Consumer Affairs may be constituted to examine various issues concerning internal trade and make recommendations for internal trade reforms.
The State Governments would administer the Shops & Establishment Act within their territorial jurisdiction. “Trade & Commerce within the State” is a subject allocated to the State Governments, under the Constitution of India. State Governments are also responsible for aspects ancillary to multi-brand retail, such as zoning regulations, warehousing requirements, access, traffic, parking and other logistics. As such, the policy provides that it would be the prerogative of the State Governments to decide whether and where a multi-brand retailer, with FDI, is permitted to establish its sales outlets within the State. Therefore, implementation of the policy is not a mandatory requirement for all States.
Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census (including an area of 10 kms around the municipal/urban agglomeration limits of such cities). On the other hand, States/ Union Terrritories, which do not have any city with a population exceeding 10 lakhs, but are desirous of implementing the policy, would have the flexibility to do so.
Thus, the revised condition gives primacy to the decision of the States in this regard, recognizing that the FDI policy constitutes, at best, an enabling framework for the purpose.
Adequate safeguards have been built into the policy, some of which have been further strengthened.
A three year timeframe has been fixed for setting up the back-end infrastructure, which includes capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure.
Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. This condition will bind the foreign investors to invest in critical back-end infrastructure, which is a felt need across the country. It would also make the foreign investors accountable for proper implementation of the condition.
The decision would benefit stakeholders across the entire span of the supply chain. Farmers stand to benefit from the significant reduction in post-harvest losses, expected to result from the strengthening of the backend infrastructure and enable the farmers to obtain a remunerative price for their produce. Small manufacturers will benefit from the conditionality requiring at least 30% procurement from Indian small industries, as this would enable them to get integrated with global retail chains. This, in turn, will enhance their capacity to export products from India. As far as small retailers are concerned, it is evident that organized retail already co-exists with small traders and the unorganized retail sector.
Studies indicate that there has been a strong competitive response from the traditional retailers to these organized retailers, through improved business practices and technological upgradation. Global experience also indicates that organized and unorganized retail co-exist and grow. The young people joining the workforce will benefit from the creation of employment opportunities. Consumers stand to gain the most, firstly, from the lowering of prices that would result from supply chain efficiencies and secondly, through improvement in product quality, which would come about as a combined result of technological upgradation; efficient grading, sorting and packaging; testing and quality control and product standardization.
Implementation of the policy will facilitate greater FDI inflows, additional and quality employment, global best practices and benefit consumers and farmers in the long run, in terms of quality, price, greater supply chain efficiencies in the agricultural sector and development of critical backend infrastructure.
The high-level group, to be constituted under the Union Minister of Consumer Affairs, is expected to look into various aspects relating to internal trade, to make recommendations on internal trade reforms to the Government, whenever required. This is in response to a demand articulated by traders’ associations during the course of consultations. Reforms in internal trade will ensure distributional efficiencies and also that the benefits from trade are available to all sections of society.