"We have recommended the Tesco application for clearance," a senior DIPP official told ET. The DIPP vets all foreign investment proposals in the retail sector before they are sent to FIPB, the inter-ministerial body that clears foreign direct investment in sectors where government permission is required.
The DIPP approval means that it has found the proposal to be compliant with India's foreign investment policy for retail.
The FIPB has separately circulated the proposal for comments from departments of economic affairs and revenue within the finance ministry, ministry of consumer affairs and ministry of small and medium enterprises.
A senior finance ministry official said the FIPB will examine the proposal to see if it fulfilled all requirements of the country's policy for the sector, and not go into the structuring of the Tesco investment.
"We need to encourage foreign investment in the country. It's up to foreign investors what structure or route they wish to adopt to meet the policy conditions," the official said.
India had opened the retail sector to foreign investment but waited impatiently for almost 15 months before Tesco became the first foreign company to apply for permission to invest in the country. Industry minister Anand Sharma has already welcomed the proposal and it is unlikely that too many obstacles will be put in its way.
Tesco in its proposal has stated that it wishes to take a 50% stake in Trent Hypermarket, which is currently totally owned by the Tatas. The company plans to initially invest $110 million and will put at least 50% of the first tranche of $100 million in back-end infrastructure, as required by the multi-brand retail policy. It has said it will also use this infrastructure for wholesale activities as well.
The company may be asked by the government to give details of existing back-end infrastructure to ensure proper monitoring of the fresh investment. Tesco has also promised to comply with the 30% local sourcing condition in the FDI policy.
The UK retailer will invest $90 million, of its total $110 million investment, to subscribe to equity shares of Tent Hypermarket Ltd while $20 will be employed to acquire existing equity from Trent. Both Trent and Tesco will hold 50% each in the venture after the induction of foreign equity.
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