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Jun 06, 2013 at 10:56pm IST

Cabinet clarifies retail FDI norms, bans franchisee route

New Delhi: In response to the DIPP's plea for clarity on FDI policy in multi-brand retail (MBR), the Cabinet issued clarifications which allow only 30-per cent sourcing for front-end stores and forbid the MBR entity from conducting any other form of distribution.

The sourcing conditions are only for manufactured store-products and does not apply to the procurement of fresh produce. MBR entities are to make fresh investment for back-end infrastructure and can only invest in greenfield assets.

The government also clarifies that no acquisitions were permitted for back-end assets and the FDI-in-MBR entity cannot take undertake wholesale activity.

Cabinet clarifies retail FDI norms, bans franchisee route

The cabinet's clarifications allow only 30 pc sourcing for front-end stores and forbid the MBR entity from conducting any other form of distribution.

MBR front-end stores are to be owned and operated by the company while cash-and-carry trading cannot be treated as back-end infrastructure, the clarifications pointed out.

Wholesale trading cannot be treated as back-end infrastructure and back-end infrastructure investment will have to be greenfield for MBR and multi-brand retail trading via e-commerce not permitted. The government also stipulated that the franchisee route was not permitted in FDI in MBR.

The government announced that the policy has been communicated to states and added that the states were free to regulate MBR trade and impose additional conditions.

The clarifications also confirm that the state government's consent was sufficient for foreign companies to enter into MBR pacts.

The government is still considering sourcing-restrictions amongst group companies, requirement of 50 per cent back-end infrastructure investment within 3 years and the mandate of 30-per cent sourcing from small industries.

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