Union Cabinet today cleared the bill to increase foreign direct investment to 51% in multi-brand retail and 100% in single brand. Commerce and industry minister Anand Sharma said that he would give a statement in Parliament on retail FDI. Currently, India allows 51% FDI in single brand retail and 100% FDI in cash and carry format of the business.
The decision will be cheered by global retail giants such as Wal-Mart that have long been eyeing India’s lucrative retail sector which is mainly populated by small ‘mom & pop’ shops. Currently, organized retail, or large chains, makes up less than 10% of the market.
An ASSOCHAM report states that India’s overall retail sector is expected to rise to USD 833 billion by 2013 and to USD 1.3 trillion by 2018, at a compounded annual growth rate of 10% driven by the emergence of shopping centres and malls, and a middle class of close to 300 million people that is growing at nearly 2% a year.
The recommendation to increase FDI in retail was made by Cabinet Secretary Ajit Kumar Seth, however it came with certain riders like 50% of the investment and jobs should go to the rural areas, 30% of the inputs should be sourced from medium and small enterprises and investment in infrastructure.
However, such entities would be allowed only in towns with population of over 10 lakh. Only 51 towns in the country meet this requirement, so a large group of people will not get this service.
As per unconfirmed news sources The approval of FDI in the multi-brand retail sector comes with some riders. Some of them are as follows:
- The minimum investment amount per project in multi-brand retail would be USD 100 million.
- Sales centres are only allowed to be set up in cities with population of more than one million.
- 50% of the investment in required to be allocated in back end infrastructure.
- 30% of the inputs are required to be sourced from medium and small enterprises
