Government opens door to foreign retailers Cabinet gives its nod to 51 FDI in Multi-brand retail and 100 in Single brand retail

The Cabinet has on Thursday cleared the long overdue reform, allowing 51 percent foreign direct investment (FDI) in multi-brand retail. The Cabinet has also decided to raise the cap on single brand retail to 100 percent from existing 51 percent. With this move, India will throw open its retail sector to foreign giants like Wal-Mart and Carrefour..The Cabinet has on Thursday cleared the long overdue reform, allowing 51 percent foreign direct investment (FDI) in multi-brand retail. The Cabinet has also decided to raise the cap on single brand retail to 100 percent from existing 51 percent. With this move, India will throw open its retail sector to foreign giants like Wal-Mart and Carrefour..Currently, India does not allow FDI in multi-brand retail and only allows 51 percent FDI in single brand retail and 100 percent FDI in cash and carry format of the business..The global retail giants have long been eyeing India’s lucrative retail sector which is mainly dominated by small ‘mom & pop’ shops. With this move, the experts expect retail sector to see lot of M&A activity with the entry of foreign players and the sector will get the much needed capital..The debate to open the market to foreign retailers had been going on for the last five years since the time FDI was first allowed in single brand retail. There has been severe political opposition and parties are concerned that the ‘mom-and-pop’ stores and kirana shops will be put out of business by multinational companies..In August, a committee of secretaries (CoS) headed by the Cabinet Secretary, Ajit Kumar Seth had cleared a proposal to allow 51 percent FDI in multi-brand retail, with some tough riders..CoS had recommended that it would be mandatory for investors to spend 50 percent of the amount towards building and maintaining back-end infrastructure such as warehouses, cold-storage and transportation network. A foreign retailer will have to commit at least $100 million investment. The retailers will have to source at least 30 percent of manufactured and processed products from small-scale units. CoS also recommended that FDI should be allowed only in 36 large cities which have population of over one million..We understand from news reports that the Cabinet has almost endorsed most of the recommendations made by the Committee of Secretaries (CoS). It will be interesting to analyse the specific conditions as and when a notification comes out..Bar & Bench had earlier spoke to Khaitan Partner Vaishali Sharma on opening of the retail sector.