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Last Updated : Mar 01, 2017 07:34 AM IST | Source: Moneycontrol.com

EXCLUSIVE: FDI norms may be eased for multi-brand retail, commodity markets

As reported in Moneycontrol on Monday, the government may allow limited sale of beauty and personal care products in global giants' food retail outlets as part of plans to ease rules for multinationals to open stores in the country.

 
 
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India will likely ease foreign direct investment (FDI) rules for several sectors, including multi-brand retail and commodity markets, a move aimed at conveying the Narendra Modi-government's intent to walk the talk on economic reforms.

As reported in Moneycontrol on Monday, the government may allow limited sale of beauty and personal care products in global giants' food retail outlets as part of plans to ease rules for multinationals to open stores in the country.

Inter-ministerial consultations are currently on for writing the new rules to partially open up the non-food sector to transnational deep-discount retailers.

Prime Minister Narendra Modi will take a final view on the matter and a decision is expected after the second part of Parliament's Budget session ends in March.

Along with the new FDI policy, the government will announce the replacement mechanism for FDI applications after abolition of the Foreign Investment Promotion Board (FIPB) — the current nodal agency that vets overseas investment applications — a move that will hasten fund flows into the economy.

The government will also likely allow banks and mutual funds to invest in commodity markets.

The move on allowing multi-brand non-food retail, once implemented, will effectively open up India’s lucrative USD 10 billion home and personal care (HPC) market for foreign deep-discount retailers, bringing them in direct competition with consumer goods companies such as Godrej, Dabur, Colgate-Palmolive and yoga guru Baba Ramdev-promoted Patanjali Ayurved.

The move is significant, because local traders — a core constituency of the ruling Bharatiya Janata Party (BJP) — have been persistent in their opposition to allowing foreign giants to set up stores in India arguing that such mega supermarkets will endanger the livelihood of millions of neighbourhood mom-and-pop stores and street vendors.

The previous UPA government had allowed up to 51 percent FDI in multi-brand retail. The Modi-government has kept the policy unchanged, although it has allowed 100 percent FDI in food retail outlets.

In June last year, the Cabinet allowed up to 100 percent foreign direct investment (FDI) in multi-brand food retail, allowing global corporations to set up “food-only” outlets under the condition that the products sold are manufactured locally.

Global retailers have found the existing “food only” rule restrictive and not commercially attractive enough for them to commit millions of dollars in setting up outlets in Asia’s third largest economy.

Sources, who did not wish to be identified, told Moneycontrol that under the new rules, apart from grocery and food, these supermarkets may be allowed to sell soaps, shampoos, cosmetics and toiletries provided the value of personal care products do not exceed 20-30 percent of food merchandise sold through each of the outlets, sources said.

While foreign retailers will have to manufacture food products in India, they will also likely be asked to mandatorily invest at least 15 percent in local back-end infrastructure such as cold chains.

These rules will likely be bundled with the clause allowing them limited sale of HPC products, sources said.

According to India Brand Equity Foundation (IBEF), a government-backed research body and think-tank, the Indian food and grocery market is the world’s sixth-largest, with retail contributing 70 percent of the sales.

In the Budget speech for 2017-18, Finance Minister Arun Jaitley had said that FIPB will be phased out and “further liberalisation of FDI policy is under consideration and necessary announcements will be made in due course”.

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First Published on Feb 28, 2017 01:42 pm
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