The much anticipated and perhaps long overdue reforms to push the economy once again towards the growth trajectory were unearthed by the Central Government on Friday, September 14, 2012. It allowed 51 per cent FDI in multi brand retail; 49 per cent by foreign airlines in the severely cash strapped aviation sector and disinvestment in four PSUs, thereby adding to the wave of reforms which started with 100 per cent FDI in single brand retail. The markets reacted sharply with the BSE Sensex gaining 443.11 points to close at 18464.27, the highest close in more than a year, while the NSE Nifty gained 142.30 points to close at 5577.65.
However, the contentious and politically risky opening up of the organized retail sector hasn't been made without legal riders. The significant among those may be noted down as below:
- The approval for investment is to be taken from the Foreign Investment Promotion Board (FIPB), which shall grant such request only if the investment is of a minimum of $100 million, 50 per cent of which is to be invested in "back end infrastructure" (investments made towards processing, manufacturing, distribution, design improvement, quality-control, cold chain, warehouses and packaging) within three years of induction. Also, to benefit the Medium and Small Sector Enterprises, 30 per cent of the products must be procured locally. For this purpose, the note defines small industries as those which have a total plant and machinery investment not exceeding $250,000 (at the time of installation, without depreciation).
- Fresh agricultural produce may be unbranded and the Government, in all circumstances, shall retain the first right to procure agricultural produce.
- Retail chain will be allowed only in those cities with a population of 10 lakh or above in accordance with the 2011 census. As for those states/UTs without such cities, retail sale outlets shall be allowed to be set up in the preferred city of such state/UT.
- The States have been given veto power to negate the opening of such stores in their respective states. So, the final call, as to whether the customers will see the likes of Walmart or Tesco, shall lie with the Governments of their states. (In this regard it is important to note that India has signed Bilateral Investment Promotion and Protection Agreements or BIPAs with more than 70 countries, and thus as per international trade norms, will have to provide national treatment to investors from such countries).
- Once open, the foreign retailers shall have to comply with self-certification and maintain all records.
