The government plans to dilute local sourcing norms and investment guidelines for foreign retailers as well as give states the freedom to relax the minimum 10 lakh population threshold, as it makes yet another attempt to woo global retail chains.

The UPA government had last year staked its survival over the issue of allowing foreign supermarkets to invest in India, but has so far not been able to attract a single dollar from the likes of Walmart, Tesco and Carrefour, which have been unhappy with the stringent entry norms imposed on them. The government's attempt to relax these norms, in the form of 'clarifications' issued a couple of months ago, had failed to assure foreign investors, and this is the second time it is trying to address their concerns.

According to a cabinet note prepared by the Department of Industrial Policy and Promotion (DIPP), the stipulation that foreign multi-brand retailers must purchase 30% of what they sell in India from small vendors will remain.

Retailers may still wait

But the definition of what constitutes 'small industry' is being enlarged.

Govt set to ease foreign retail norms; Sourcing & single-brand guidelines likely to be diluted At present, small industry, for the purpose of 30% local sourcing, has been defined to include units with investment in plant and machinery of less than $1 million. This ceiling will now be raised to $2 million, and purchases made from these units will continue to be considered as sourcing from small vendors, even after their investment in plant and machinery outgrows the $2-million limit.

The cabinet note says the $2-million criterion will apply at the time of the first engagement between the foreign retail chain and the vendor, but not for the entire duration of their relationship. The government has also decided to include goods bought from agri cooperatives and farmer cooperatives like Amul in the 30% compulsory local sourcing requirement.

A controversial provision of the multi-brand retail policy relates to the stipulation that 50% of funds brought by foreign retailers must be invested in back-end infrastructure. The government plans to partially relax this provision by confining the 50% back-end outlay requirement only to the first $100 million brought in by foreign companies, and not to their total investment.

But this may not address the concerns of companies such as Walmart that have invested in the back end through their cash-and-carry operations, and don't want to commit fresh investment again.

The government appears to have retained the clause that stipulates foreign retailers must invest $100 million in new infrastructure facilities in the first three years, thereby discouraging mergers and acquisitions in the sector.

The new policy proposes to give state governments the freedom to allow FDI-funded multi-brand stores in cities of their choice. The current policy said such investment could only be in cities with population of over 10 lakh.

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