FOREIGN DIRECT INVESTMENT IN RETAIL SECTOR: SINGLE BRAND AND MULTI BRAND

WITH REFERENCE TO MASTER CIRCULAR 2 OF 2010

BY GYANENDRA CHALIHA

INDIAS FOREIGN DIRECT INVESTMENT POLICY AND REGULATING AGENCIES

Indias FDI Policy is reviewed on continuos basis and changes in sectoral policy/ sectoral equity cap are notified through press notes by Secretariat for Industrial Assistance, Department of Industrial Policy and Promotion.

ROUTES OF FDI

AUTOMATIC ROUTE GOVERNMENT APPROVAL : Application for approval to : FIPB and SIA

INDIAN RETAIL SECTOR

INDIAN RETAIL SECTOR IS DIVIDED IN TWO PARTS: Organised Unorganised.

Organised Retail: Retail Outlets, Shoping Malls , Hypermarket etc. Unorganised Retail:Local Kirana Shopes, Mom and Pop Shope etc.

INDIAN RETAIL SECTOR

Only 5% of retail sale comes from organised retail sector.

India is the 3rd most attractive destination for fdi in retail sector and size of the Indian retail will be 535 US dollar by2013.

FDI IN INDIAN RETAIL SECTOR & MASTER CIRCULAR 2 OF 2010

Foreign Direct Investment has been allowed in retail sector in the year of 2006 through press note no. 4(2006).

100% FDI In Cash & Carry Wholesale Trading.

51% In Single Brand Retail Only. No FDI In Multi Brand.

CASH & CARRY WHOLESALE TRADING

Cash & Carry Wholesale trading/Wholesale trading, would

mean sale of

goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. Wholesale trading would, accordingly, be sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption.(5.2.24.1.1)

GUIDELINES FOR CASH & CARRY WHOLESALE TRADING

For undertaking WT, requisite licenses/registration/ permits, as specified under the relevant Acts/Regulations/Rules/Orders of the State Government/Government Body/Government Authority/Local SelfGovernment Body under that State Government should be obtained. Except in case of sales to Government, sales made by the wholesaler would be considered as cash & carry wholesale trading/wholesale trading with valid business customers, only when WT are made to the following entities:

 Entities holding sales tax/ VAT registration/service tax/excise duty registration; or

Entities holding trade licenses i.e. a license/registration certificate/membership certificate/registration under Shops and Establishment Act, issued by a Government Authority/ Government Body/ Local Self-Government Authority, reflecting that the entity/person holding the license/ registration certificate/ membership certificate, as the case may be, is itself/ himself/herself engaged in a business involving commercial activity; or

SINGLE BRAND & DEFINITION ISSUE

51% FDI is permitted under government route. No definition of single brand has been given. Certain conditions have been specified: a) Products to be sold should be of a Single Brand only. b) Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India. c) Single Brand product-retailing would cover only products which are branded during manufacturing.

APPROVAL PROCEDURE
Application seeking 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 Department of Industrial Policy & Promotion. The application would specifically indicate the product/ product categories which are proposed to be sold under a Single Brand. 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 & Promotion, to determine whether the products proposed to be sold satisfy the notified guidelines, before being considered by the FIPB for Government approval.

Calculation of direct foreign investment

The entire investment(x%) will be considered as direct foreign investment.

X%

Non-resident entity

Indian company A. Co

Calculation of indirect foreign investment

The calculation of the Indirect Foreign Investment in an Indian company is linked to the ownership and / or control of the investing entity. The same has been discussed below: Ownership : An Indian company would be considered as owned by resident Indian citizens and Indian companies if: more than 50 percent of the equity interest in the Indian company is beneficially owned by resident Indian citizens or Indian companies which are owned and controlled ultimately by resident Indian citizens.

Calculation of indirect foreign investment

Control: The Indian company would be considered as controlled by resident Indian citizens and Indian companies if: The resident Indian citizens and Indian companies (which are owned and controlled ultimately by resident Indian citizens) have the power to appoint a majority of its directors.

Calculation of indirect foreign investment

Non-resident entity (30%)

No foreign indirect investment in company A. Co

Investment entity(A. Co)

Resident Indian (70%)

Indian Company (B. Co)

Calculation of indirect foreign investment

60% will be considered as indirect foreign investment in company A. Co

Non-resident entity (70%)

Investment entity(A. Co)

60%
Resident Indian (30%)

Indian Company (B. Co)

Non-resident entity (70%)

A. Co makes investment in wholly owned subsidiary. Indirect foreign investment will be computed in the ratio of 70:30

Investment entity(A. Co)

100%
Resident Indian (30%)

Indian Company (B. Co)

MULTIPLE BRAND

FDI is not permitted in multiple brand.

Govenment has published a discussion paper on allowing FDI in multi brand retail sector.

THANK YOU