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The Government of India on 24 November 2011 had considered liberalization of For eign Direct Investment in Multi Brand Product

Retail Trading and Single Brand Pr oduct Retail Trading. However, the Government of India has on 14 September 2012 finally approved the keenly awaited policy measures of permitting Foreign Direct Investment in Multi Brand Product Retail Trading up to 51% and further simplif ied FDI in Single Brand Product Retail Trading where FDI is allowed up to 100%. The major rationale for relaxing FDI in SBPRT and allowing FDI in MBPRT is lever aging Foreign investment in supply chain infrastructure, increase in supply chai n efficiencies, securing remunerative prices for farmers, reduction in impact on food inflation and creation of employment opportunities. This is, inter alia, aimed at attracting i nvestments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhan cing competitiveness of Indian enterprises through access to global designs, tec hnologies and management practices. As per the new policy announcement of GOI on 14th September 2012, the suspension of GOI decision taken on 24th November 2011 permitting FDI in Multi Brand Produ ct Retail Trading stands removed, however the conditions approved by the GOI in the press release dated 24th November 2011 is unchanged. Briefly the following changes happened with respect to the existing policy frame work: The existing FDI Policy relating to Retail Trade for MBPRT prohibited FDI in MBP RT. However as per the 14th September 2012 announcement, FDI is permitted up to 51%, with Government Approval Route and subject to conditions. The existing FDI Policy relating to Retail Trade for SBPRT prior to September, 2 012 permitted FDI up to 100%, with Government Approval and subject to conditions and additional conditions were specified for FDI in excess of 51%. However as p er the 14th September 2012 announcement conditions were relaxed for all FDI in S BPRT and all FDI in SBPRT exceeding 51%. So if a company wants to build its roots in India via the MBPRT route, the follo wing salient features of FDI in MBPRT must be kept in mind and comply with the f ollowing: 1) Minimum Investment: Minimum amount to be brought in by a Foreign Investo r would be USD 100 million. 2) No FDI in MBPRT in NO GO States: Retail sales outlets may be set up onl y in those States which have agreed or agree in future to allow FDI in MBPRT und er the FDI policy. Subject to FDI policy and location requirements, the respecti ve State government to decide where a multi-brand retailer, with FDI, is permitt ed to establish its sales outlets within the State. The establishment of retail sales outlets will be in compliance of applicable State laws, regulations such a s the Shops and Establishments Act etc. 3) Location for retail Sales: Retail sales locations may be set up only in cities with a population of more than 1 million as per 2011 Census and may also cover an area of 10 kms around the municipal or urban agglomeration limits of su ch cities. Accordingly, 53 Indian cities qualify for MBPRT with FDI. Retail sale s locations may be set up in States and Union territories not having cities with population of more than 1 million as per 2011 Census in the cities of the choic e of such State / Union territory preferably the largest city and may also cover an area of 10 kms around the municipal or urban agglomeration limits of such ci

ties. Retail locations will be restricted to conforming areas as per the Master / Zonal Plans of the concerned cities and provision will be made for requisite f acilities such as transport connectivity and parking. For the rest of India, cur rent FDI policy regime will continue. As per the current FDI regime, 100% FDI is allowed up to wholesale cash and carry point from which franchise / small retai lers are able to source products for sale to the public at large. 4) Mandatory Procurement: At least 30% of the procurement of manufactured / processed products shall be sourced from 'small industries' which have a total investment in plant & capital machinery not exceeding US $ 1 million. This can b e done anywhere in the world and is not India specific. This valuation of USD 1 million refers to the value at the time of installation, without providing for d epreciation. If at any point in time, this valuation is exceeded, the industry s hall not qualify as a 'small industry' for this purpose. 5) Unbranded Products: Fresh agricultural produce, including fruits, vegeta bles, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. 6) Agricultural Products: First right to procure agricultural products will lie with the Government. 7) Backend Infrastructure: At least 50% of total FDI brought in shall be in vested in 'backend infrastructure' within 3 years of the induction of FDI. Back-E nd Infrastructure will include capital expenditure on all activities, excluding t hat on front-end units. For instance, back-end infrastructure will include inves tment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market p roduce infrastructure etc. Expenditure on land cost and rentals, if any, will no t be counted for purposes of backend infrastructure. The foreign investor would be accountable for proper implementation of the condition. 8) Self-Certification by Companies: Companies to self-certify and ensure co mpliance of the stipulated conditions which could be cross checked as and when r equired. Foreign Investors may also be required to maintain accounts, duly certi fied by statutory auditors. 9) Internal Trade Reforms: A high level group may be constituted by GOI to examine various issues concerning internal trade and make recommendations for i nternal trade reforms as Trade and Commerce within the State is the prerogative of the states under the Constitution of India. Now, if a foreign company wants to set up its shop in India via the SBPRT it has to remember the following existing and the modified conditions for SBPRT. As per existing conditions for SBPRT with any level of FDI, prior to September, 2012, FDI is SBPRT is permitted upto 100% on Government approval route which wil l require amongst others, compliance with the following: (i) Products to be sold in India should be: of a 'Single Brand' only; sold under the same brand in one or more countries other than India; branded during manufacturing process. (ii) Foreign investor should be the owner of the brand. However after the policy changes made on September, 2012 the following changes a nd relaxations were made: A foreign investor no longer has to be the owner of the brand. Only 1 non-reside nt entity, whether owner of the brand or otherwise, shall be permitted to undert

ake SBPRT in the country, for the specific brand, through a legally tenable agre ement, with the brand owner for undertaking SBPRT in respect of the specific bra nd for which approval is being sought. The onus for ensuring compliance with thi s condition shall rest with the Indian entity carrying out SBPRT in India. The i nvesting entity shall provide evidence to this effect at the time of seeking app roval, including a copy of the licensing / franchise / sub-license agreement, sp ecifically indicating compliance with the above condition. As per existing conditions, prior to September, 2012, for SBPRT with FDI exceedi ng 51% sourcing of at least 30% of the value of products sold had to be mandator ily done from Indian 'Small Industries/ Village and Cottage Industries, Artisans and Craftsmen'. Thes e sources are those which have a total investment in plant & capital machinery n ot exceeding US $ 1 million. This can be done anywhere in the world and is not I ndia specific. This valuation of USD 1 million refers to the value at the time o f installation, without providing for depreciation. If at any point in time, thi s valuation is exceeded, the industry shall not qualify as a 'small industry' fo r this purpose. As per the policy changes of September,2012 at least sourcing of 30%, of the val ue of goods purchased, will be done from India, preferably from MSMEs, village a nd cottage industries, artisans and craftsmen, in all sectors, where it is feasi ble. The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain. For the purpose of ascertaining the sourcing requirement, the relevant entity wo uld be the company, incorporated in India, which is the recipient of FDI for the purpose of carrying out SBPRT. FDI would be allowed only with prior approval of the Government. Application see king permission of the Government for FDI in retail trade of Single Brand products would be made to the Secretariat for Industrial Assistance (SIA) in the Departm ent of Industrial Policy & Promotion. The application would specifically indicat e the product/ product categories which are proposed to be sold under a Single Br and. Any addition to the product/ product categories to be sold under Single Brand would require a fresh approval of the Government. Applications would be processed in the Department of Industrial Policy & Promoti on, to determine whether the products proposed to be sold satisfy the notified g uidelines, before being considered by the FIPB for Government approval. Application for NRI investment, EOU and for FDI in retail trading (single brand ed product) cases should be submitted to SIA in DIPP