The BJP government at the centre has decided to allow 100% Foreign Direct Investment (FDI) through the automatic route in single brand retail. Until now, FDI up to 49 per cent in single brand retail was permitted under automatic route, and beyond that limit, government approval was needed.
Under the automatic route, no approval would be required from Reserve Bank of India or central government for investment.
The decision is part of the amendments in the FDI policy passed by the Union Cabinet chaired by Prime Minister Narendra Modi on Wednesday.
Foreign entities would be permitted to undertake single brand product retail trading (SBRT) in India either directly by the brand owner, or in collaboration with an Indian entity.
Single brand retail trading refers to retail stores selling products of a single brand, such as Apple or Nike, as opposed to stores such as Walmart which sell products from multiple brands.
The government has also decided to relax the local sourcing norms for foreign entities engaging in SBRT in India.
Until now, SBRT entities were required to source 30% of their purchases from India.
Under the new rules, for the first five years of their operations, SBRT entities would be allowed to set off their "incremental sourcing of goods" from India for global operations against the mandatory 30% local sourcing requirement.
Incremental sourcing has been defined as the annual increase (in value terms) of the SBRT firm's global sourcing from India for the single brand.
In other words, whatever increase that occurs in the entity’s sourcing from India for global operations every year would be included in the figures for “local sourcing” for Indian operations.
The SBRT entity shall be required to meet the 30% sourcing norms directly towards its India operation after the initial 5-year period.
Small businesses and trade unions have opposed the government decision. Praveen Khandelwal, National Secretary General of Confederation of All India Traders, said, “It’s a serious matter for small businesses. It is a pity that instead of formulating policies for the welfare, upgradation and modernisation of existing retail trade, the government is more interested in paving way for the MNCs to control and dominate the retail trade of India.”
Observers have been quick to note that the BJP itself had been opposed to FDI in retail when it was in the Opposition. “Congress is giving nation to foreigners. most parties opposed FDI but due to sword of CBI, some didn't vote & Cong won through back door!”, Narendra Modi had tweeted on 5 December 2012.
The CPI(M) has lashed out against the government’s move. “This step to liberalise FDI in retail trade will have harmful consequences for domestic retail traders and shopkeepers. This measure indicates that the Modi government is moving towards allowing FDI in multi-brand retail trade,” said a statement by the party’s Polit Bureau.
“The BJP, while in opposition, was opposed to the entry of foreign companies into retail trade. Now being in government, it has hypocritically reversed its position,” the statement said.