CCEA approves dilution of safeguards for FDI in multi-brand retail

August 4, 2013

The Cabinet Committee on Economic Affairs (CCEA) has given its nod for the “dilution” of certain safeguards including relaxing the 30% sourcing norm and doing away with the mandatory 50% condition for backend infrastructure investment which were approved by Parliament while allowing 49% Foreign Direct Investment (FDI) in multibrand retail announced in 2012. Though the changes were strongly opposed by the Ministry of Micro, Small and Medium Enterprises (MSME) but they were ignored by the CCEA while approving the new norms seeking to attract much needed FDI investments by global retail chains in Multi-brand Retail Trade (MBRT).

What are the changes in the FDI in multibrand approved by the CCEA?

As per the CCEA:

The norm of 30% mandatory sourcing from small scale industries clause has been waived off.
Under the new policy, medium scale industries with total investment not exceeding $2 million would also be made eligible for sourcing of manufactured/processed to products. This requirement would be reckoned only at the time of first engagement with the retailer and such industry shall continue to qualify for this purpose even if it outgrows the investment of $2 million during the course of its relationship with the said retailer.
The number of cities to be covered under the MBRT policy has also been increased by amending the clause of permitting cities or States with less than 10 lakh population also to open front end stores with the permission of the States or Union Territories.
The clause that makes it mandatory for retail companies to invest at least 50% of total FDI brought in the backend infrastructure has also been diluted. Under the new policy, the 50% of total FDI investment would only apply to the first tranche of $100 million to be invested in backend infrastructure within 3 years.
Hikes in FDI caps in many sectors — from 74 % to 100 % in the telecom sector, from 26% to 49% in the insurance sector- have been approved.
The Cabinet Committee on Security has been allowed to go beyond 26% in defence on a case-to-case basis. It also raised sectoral caps and altered the approval route in petroleum and natural gas, single-brand retail, power and commodity exchanges in certain other sectors.

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