INDIA in moving towards creating a win win situation both for the Government, foreign investors in retails sector. In this context Government of India announced further concessions on 1st August 2013 melting down investment requirements and related regulations. Recently potential investors had pointed towards regulations, which they were unable to comply with. Government modified such rules and regulations also considerably to fulfill investors’ requirement. Government’s measures have been necessitated to boost economic growth rate, which came down to 5% and 35% drop in the FDI in comparison to last year.
The changes announced are:SOURCING OF GOODS LOCALLY
In the original policy document, there was a requirement that 30% of goods should be sourced from the companies/firms whose investment does not exceed US $ 1 Million; this has now been increased to US $ 2 Million. In further relaxation, Government announced that initially 30% requirement can be met in five years and after that on annual basis. After representations from the investors, policy makers also felt the need to amend the cap.
RETAILER AND SUPPLIER RELATIONSHIP
Second amendment is related to relationship between retailer and supplier. There is a case, at the time Retailer starts procuring products from a supplier whose capital investment is below US $ 2 Million. Suppose with their efforts, business flourishes and there come the need to expand the capacity resulting in injecting more capital by supplier. In this case, supplier can inject more capital and continue making supplies to the retailer. At this stage, the clause to keep the investment below US 2 Million will not apply.
INVESTMENT IN INFRASTRUCTURE
In the original document, government had put the condition that 50% of the total investment should be put in the infrastructure, logistics network and warehouses. This clause has now been amended and minimum investment required to be made in logistics and warehouses is US $ 50 Million (50% of the mandatory investment requirement.) The retailers as needed can make subsequent investments.
Foreign retailers have welcomed these amendments that are likely to help bringing more proposals for company formation in India.
STORE IN CITY WITH POPULATION LESS THAN ONE MILLION
The condition that Foreign Retailers cannot open the stores in the cities, which have population less than 1 Million, has also been relaxed. Now they can do so, with the approval of the State Government. One condition is still there that the state should not have any other city with a population of more than one million. The cities like Gurgaon and Aurangabad, which otherwise have good potential for foreign retail stores, will qualify.
With the eased entry-level FDI rules, it is likely that India’s US $ 500 billion retail market will attract a number of foreign retailers, which will decide for company formation in India.
Analysts are of the view that foreign retailers and super market chains will welcome the relaxations. Although some of them think that potential investors would like to wait for the outcome of General Elections slated to be held in May 2014.