Commerce ministry against raising FDI cap in multi-brand retail

Agrees case for relaxing other conditions but not the 51% barrier; DIPP to approach Cabinet soon

The ministry of commerce and industry is against raising the limit of foreign direct investment (FDI) in multi-brand retail trading to 74 per cent from  51 per cent. The change was suggested by a finance ministry committee headed by Economic Affairs Secretary Arvind Mayaram.

The Department of Industrial Policy and promotion (DIPP) under the ministry of commerce and industry is likely to approach the Cabinet soon to relax the riders to the cap rule but not the latter itself. “There is no (effective) difference between 51 per cent and 74 per cent,” a senior DIPP official told Business Standard. “Raising the cap is not the issue. Investors will come only when we relax the conditions, which are being reviewed. On the proposal of raising the cap, we will send our views shortly. We are now reviewing the riders, which will lead to a change in the policy. Hence we will approach the Cabinet.”

The official said all the changes proposed would be presented soon, so as to get these approved before Parliament sits for the monsoon session, expected by the end of the month.

The Mayaram committee had proposed easing the FDI cap in multi-brand retail trading to 74 per cent under the government approval route. It had said this would ensure Indian ownership of at least 26 per cent; this level, according to the Companies Act, gives the power to block a special resolution of the board of directors.

It appears the ministries of micro, small & medium industries and consumer affairs, food & public distribution have also expressed concern on raising the FDI limit in the sector.

The government, under pressure from global retail majors such as Walmart, Tesco, Carrefour and Auchan, is looking at a review. The retailers have said they’d like to invest in India, provided the conditions are relaxed. DIPP Secretary Saurabh Chandra refused to comment on the issue.

He held a second round of inter-ministerial discussion on Tuesday on raising FDI caps across the board. The foreign retailers are mainly concerned on three issues —investment in back-end infrastructure, 30 per cent mandatory sourcing and opening stores in cities having less than a million population.  

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• The Mayaram panel had proposed raising the FDI cap to 74% under the government approval route
  

 

This would ensure Indian ownership of at least 26%; this level, according to the Companies Act, gives the power to block a special resolution of the board of directors
 

Investors will come only when we relax the conditions, which are being reviewed and raising the cap is not the issue, says the commerce ministry
 

The government is looking at a review under pressure from global retail majors like Walmart, Tesco, Carrefour and Auchan

Last month, the government issued a four-page clarification to the multi-brand FDI policy change of September 2012. It failed to enthuse investors. According to the norms, foreign retailers are allowed to launch stores in cities having more than a million population only, barring Jammu and Kashmir and Assam. They want this bar on population removed.

On procurement, retailers have been asking the government to make it similar to the norms prescribed for single brand retailers. It is mandatory for multi-brand ones to source at least 30 per cent from the small and medium sector; there is no such compulsion for single-brand. Foreign retail majors are also not happy with the government’s mandate for at least half the total investment to be in back-end infrastructure in the first tranche.