India’s cabinet will today consider easing some requirements for foreign retailers investing in local supermarkets, according to two government officials familiar with the matter.
The cabinet will consider amendments on rules covering sourcing, infrastructure investment, and store locations, according to the two officials, who asked not to be named as they aren’t authorized to speak to the media.
The government is loosening rules to attract global chains such as Wal-Mart Stores Inc. (WMT) and Tesco Plc. (TSCO) to its supermarket industry. While the nation changed laws in September to allow foreign retailers to own majority stakes in stores selling multiple brands, no overseas companies have sought such licenses as yet.
The government currently has restrictions on store locations and requires foreign retailers to source some products from small businesses. Under the new proposals, foreign-funded outlets could be opened in any city as long as the state government approved them, according to the two officials.
Overseas retailers are currently restricted to cities with a population of more than one million people. Not all Indian states allow foreign investment in retail.
The cabinet amendments could also help international retailers choose from a wider set of suppliers. Under the proposals being studied, retailers will have to buy 30 percent of manufactured products from small- and mid-sized local firms with less than $2 million invested in factories and machinery, the officials said. Current rules are stricter, defining “small and medium” companies as those with investments of under $1 million.
The new rules could also offer more flexibility on capital investment. Companies will need to spend a minimum $50 million on facilities such as warehouses, distribution networks and refrigerated storage centers, according to the two officials. That clarifies existing rules, which required half of all investments in the first three years to be for such infrastructure.
Foreign direct investment in supermarkets is being held back “by some questions” and the cabinet will discuss remedial proposals, Finance Minister Palaniappan Chidambaram, told reporters in Delhi.“I think you will find the first investments in FDI in multi-brand retail coming after the clarifications.” Wal-Mart and other foreign chains already have some wholesale operations in the country.
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