Please find the FDI write up below:

Regulatory scenario - FDI Evolution

After understanding the retail dynamics in terms of segments, margins and growth drivers, let us
now discuss the regulatory scenario and how this would be imperative for retail growth in the
future.
With the emerging economy and large consumer base, India has become one of the most attractive
destinations for global retailers. However, the global economies have liberalized policies pertaining
to FDI in retail compared to India. he !overnment has progressively underta"en reforms and has
been liberalizing the retail sector# thereby attracting significant foreign investments. he regulatory
and supervisory policies have been reshaped and reoriented to meet the new challenges and
opportunities in this sector.
India opened up the retail sector in the year $%%& with FDI up to $''( allowed in cash and carry
)wholesale* via the government approval route. +ubse,uently in -''.. $''( FDI in cash and carry
model was permitted under automatic route.
In -''., the government opened up further avenues by permitting /$( FDI in +01 )sub2ect to the
!overnment approval*. +ubse,uently in 3anuary -'$- the government notified $''( FDI in +01,
sub2ect to certain conditions. his move paved way for many global chains to enter India, especially
in apparel and footwear segment.
he !overnment of India released a discussion paper in -'$' for FDI in multi4brand. It had
e5tensively gathered public, academic and industry views on the issue. In 6ovember -'$$, the
!overnment came out with its proposal for the new FDI policy. However, unable to achieve
political consensus on the issue, they had to shelve their plans for the enactment of the policy.
Finally the !overnment decided to pass the new FDI policy on 701 in +eptember -'$- allowing
/$( FDI in 701 with stringent conditions. However in August -'$8, the government rela5ed
sourcing and investment rules for supermar"ets allowing retailers to meet 8' ( sourcing
re,uirement over / years initially and they have to invest /' ( of an 9initial: mandatory investment
of ;$'' million in setting up cold storages and warehouses.

Regulatory scenario - FDI
Now lets look into the key FDI segments of Retail along with its conditions in detail
India opened up the retail sector in the year $%%& with FDI under automatic route, wherein FDI
investment up to $''( is allowed in case of cash and carry wholesale trading and trading for
e5ports. <ash = <arry is an organised wholesale set up where the customer is not the end user, but a
business li"e "irana store, hotel etc. hat needs to purchase bul" commodties.his move was
initiated to bring in investments to improve the bac" end infrastructure and supply chain
management. 7etro <ash = carry was the first to start operations in -''8.
he !>I allowed FDI up to 1! in "single #rand products as per the conditions?
@ Aroduct should be sold under same brand internationally.
@ Foreign investor should be the owner of the brand
@ In case of FDI beyond /$(, sourcing of at least 8'( of the value of products should be
sourced through smallBvillage and cottage industries
he main ob2ective of FDI in single brand was to attract investment, technology and global best
practices and catering to the demand for such branded goods in India. his implies that foreign
companies can sell goods sold globally under a single brand, as we see in the case of 1eebo", 6o"ia
and Adidas.
6ow coming to the much spo"en about FDI in multi brand. FDI up to /$( under the government
route is allowed in Cmulti brandD retail as per the following conditions?
7inimum amount to be brought in by the foreign investors should be E+;$'' mn.
At least /'( of the total investment to be invested in 9bac"4end infrastructure:.
0ac"4end infrastructure would include processing, manufacturing, distribution,
,uality control, pac"aging, logistics etc. However e5penditure towards land
ac,uisition and rental e5penses wonDt be classified as bac"4end infrastructure. When
we loo" at the implications of this condition on "ey organised segments, we analyse
that other than 7ass !rocery segment )which needs significant investment in the
bac"end*, this FDI policy constraint would pose a significant challenge for other
segments li"e Apparel, 0eauty = Wellness and <onsumer Flectronics, wherein they
have limited re,uirements in the bac"end.
At least 8'( of the value of procurement of manufacturedBprocessed products shall
be sourced from Csmall industriesD. For the said purpose Csmall industriesD are
defined as the units whose total investment in Cplant = machineryD does not e5ceed
E+;$ mn. We analyse that this restriction would be difficult for <onsumer Flectronic
and other specialty stores such as 0eauty = Wellness, since their suppliers are large
size companies. However for mass grocery and apparel retailers in India, this would
be easy as they source many products directly from small suppliers.
Further conditions on FDI include ?
7ulti4brand retailers with FDI will not be able to use e4commerce, whereas, Indian
retailers can use e4commerce as another channel for sales.
+tate governmentsBunion territories to decide on implementation of policy
>utlets to be set up in cities with populations of more than $ mn.
his implies that there would be limited stores in limited cities and hence reduced economies of
scale for foreign players. Details on the states and cities meeting the FDI conditions have been
discussed in the ne5t slide.
he union cabinet on August $, -'$8 has rela5ed various norms for FDI in multi40rand retail
pertaining to sourcing From Indian +7F, definition of +7F in for procurement, front end stores
access to cities and bac"4end Infrastructure.
With respect to $ourcing From Indian $%E& the e5isting policy states that at least 8'(
procurement is to be sourced from Indian Csmall IndustryD with up to ;$ mn investment in Alant and
machinery. While the cabinet has proposed to change the sourcing norm to ma"e at least 8'(
procurement sourcing from Indian Csmall IndustryD with upto ;- mn investment in A=7.
For Definition of $%E in for procurement the e5isting policy states that small industry e5ceeding
the valuation of ;$ million at any point in time will not be eligible for purpose of local sourcing.
While the cabinet has proposed a change in the definition stating that small industry valuation is
needed only at the time of first engagement with retailers. +uch industry will ,ualify for sourcing,
even if it outgrows investment of ;- million.
With respect to Front end stores access to cities e5isting policy states that retail outlets to be set up
in cities with population of over $' la"h as per census -'$$ and may also cover $' s,. "m around
urban agglomerations. 6ow the cabinet has proposed that respective states government are free to
decide cities to be allowed for front end stores
Finally pertaining to 'ack-end Infrastructure& the e5isting policy states that at least /'( of total
FDI brought in shall be invested in 0ac"end infrastructure within 8 years. he change proposed by
cabinet indicates that at least /'( of total FDI brought in the first tranche of E+; $'' million shall
be invested in 90ac"end infrastructureD within 8 years.
Apart from the FDI route, foreign retailers also have various options to operate in the Indian retail
industry, such as? +trategic Gicense Agreements, 7anufacturing, <ash = <arry wholesale trading
and Franchising.

(olitical landscape with respect to FDI %ulti-#rand policy
When we loo" at the implications of conditions pertaining to front end stores, we observe that there
are H// cities in India that ,ualify under the policy condition of population I$ million. 0esides
there are H-' cities that satisfy both the criteria of population I$million and the corresponding +tate
!overnment supporting FDI in multi4brand. About $- statesBE li"e AA, 7aharashtra , Jarnata"a,
1a2asthan, Delhi etc. support the FDI in multi brand.I n light of this, <A1F 1esearch analyses that
more than /'( of the e5isting retail stores of "ey players are in states which do not support the FDI
in multi brand, thus impacting access to significant mar"ets.
We believe that for the retailer to benefit, the policy should be consistent at the national level. In
order to sustain a multi4million dollar business, with a massive proportion of the investment in
bac"4end, a retailer should have the opportunity to ma5imize its sourcing, business and distribution
networ" all over India.
Regulatory scenario - )icensing norms
In India, the licensing and clearance re,uirements for the setting4up or e5pansion of organised retail
outlets have proved to be a ma2or hindrance in the growth of organised retailing . In contrast to the
countries such as E.J., E.+., +ingapore etc where a single4window clearance facility for the entire
licensing re,uirement e5ists, the retailers operating in India are re,uired to obtain nearly -' licenses
for setting up business in the organised apparel segment and nearly 8' licenses for organised food =
grocery retailing. +uch re,uirements delay the e5ecution of the retailersD pro2ects and significantly
add up to the cost structure. For e5ample? the stamp duty e5pense in India generally ranges from .4
$$( of the total ac,uisition cost while the same stands nearly at 84/( in other parts of the world.
he "ey licensing norms governing the retail sector are shops = establishment act, agricultural
produce mar"eting committee act, standards of weights and measures act, drugs = cosmetic act,
prevention of food adulteration act, competition act and li,uor licensing.
*a+ation Regime,
he Indian retail Industry is faced with stringent ta5ation regime with the indirect ta5es associated
with retail being the highest in India as compared to other developed economies. his coupled with
the evolving nature of ta5ation structure and the numerous compliance re,uirements have proved to
be a bottlenec" for the growth of organised retailing in India.