The government clarified on Thursday that the multi-brand retail store set up by a global retail entity will have to be 'company owned and company operated' and not operated by any franchisee.
The Department of Industrial Policy and Promotion (DIPP) said this in a clarification on queries of prospective investors/stakeholders on foreign direct investment (FDI) policy for multi-brand retail trading.
The DIPP also said the 30 per cent sourcing rider will be considered fulfilled only if it is implemented for front end stores.
It said that multi-brand retailing entity cannot engage in any other form of distribution and the entire investment in back-end infrastructure has to be additional.
The mere acquisition of supply chain or back end asset from an existing company would not be counted towards the mandatory back end investment requirement.
"The entity can invest only in greenfield (new) assets and it will not be possible to acquire supply/chain/back end assets," it said.
It also clarified that the multi brand retail trading (MBRT) entity is not envisaged to undertake wholesale activity i.e. B2B.
"The front-end stores set up by Multi-brand retail trading (MBRT) entity will have to be 'company owned and company operated' only," it said adding the wholesale/ cash & carry trading cannot be considered as having provided back-end infrastructure.
"FDI in MBRT will require fresh investment in back-end infrastructure," it added.
The investment towards back-end infrastructure can be made across all states irrespective of whether FDI in MBRT is allowed in that state or not.
It further said that investments in multiple infrastructure companies would not be counted towards fulfilment of condition of mandatorily investing 50 per cent in the back end infrastructure.
On the issue of allowing online sales to enable the company to better serve Indian customers, the DIPP clearly said that "multi-brand retail trading by way of e-commerce is not permitted".
A query was also raised on whether the minimum investment of $100 million can be used to acquire existing retail stores or setting up new retail stores or a combination of both.
The DIPP said that 50 per cent of the investments brought in, "must be" invested in back-end infrastructure and any amount spent in acquiring front end retail stores would not be counted towards the mandatory back-end infrastructure funding.
"The front-end retail stores must also be set up as an additionality and not through acquisition of existing stores," it added.
Several global retailers including Tesco and Walmart had sought these clarifications.
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