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India Approves Retail Direct Investment

State governments will have a choice in allowing global retailers to set up shop in their states.

NEW DELHI — The Indian cabinet Friday approved 51 percent foreign direct investment in multibrand retail although it stipulated that state governments would have a choice in allowing global retailers to set up shop in their states.

India continues to be an important target market for global retailers such as Wal-Mart Stores Inc., Tesco plc and Carrefour that have been testing the waters while pressing for the opening up of the sector. The decision to allow foreign companies to own 51 percent of multibrand retailers was initially made in December but was quickly vetoed by several political parties, forcing the government to defer the issue.

This time the government has made what it terms a final move, although it has included several stipulations aimed at appeasing opponents of the plan. According to economists, some important ones that global retailers will have to keep in mind include:

• States will be able to decide whether to allow global retailers in;

• A minimum $100 million investment will be required, with at least half of the company total investment in back-end infrastructure, such as warehousing and cold storage facilities, three years within setting up in India;

• The markets will be mainly restricted to cities with a population of more than one million, while state governments will have the final say in giving permission for cities with smaller numbers.

Last year the government approved 100 percent foreign ownership of single-brand retail, but with a stipulation of 30 percent local sourcing from India. This has been protested by global companies, and recently by Ikea, which revealed plans to invest 600 million euros, or $780 million at current exchange, to open 25 stores in India. The government said Friday that a company could seek a waiver from the mandatory 30 percent local sourcing clause if it set up a manufacturing facility in India.