Volume 4, Issue 1


19th January, 2012


Business Alert
100% FDI in Single-Brand Retail
The Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India has...formally removed the restrictions on foreign investment in single-brand retail sector by allowing 100 per cent Foreign Direct Investments (FDI) in this sector. However, it has put on hold the proposal for allowing up to 51 per cent FDI in multi-brand retail.

The Department of Industrial Policy & Promotion, Ministry of Commerce & Industry, Government of India has, vide its Press Note 1 (2012 Series) dated 10th January, 2012, formally removed the restrictions on foreign investment in single-brand retail sector by allowing 100 per cent Foreign Direct Investments (FDI) in this sector.

However, the Government has put on hold the proposal for allowing up to 51 per cent FDI in multi-brand retail.

Present Scenario

Single-brand retailers are permitted 51 per cent FDI under the government approval route.

New Scenario

FDI, up to 100 percent, under the government approval route, would be permitted in single brand product retail trading, subject to certain conditions.

Conditions

Foreign investment norms for single brand retailing would be subject to following conditions:

  1. 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.
  1. ‘Single Brand’ product retail trading would cover only products which are branded during manufacturing.

  2. The foreign investor should be the owner of the brand.

  3. Proposals involving FDI beyond 51 per cent would need to ensure mandatory sourcing of at least 30 per cent of the value of products sold, from the domestic small and cottage industries that have an investment in plant and machinery of maximum USD 1 million (about Rs 5 crore).

  4. Any addition to the product/product categories to be sold under ‘Single Brand’ would require fresh approval of the government.

Compliance of these conditions:

The compliance of these conditions will be ensured through self-certification by the company, to be subsequently checked by statutory auditors, from the duly certified accounts, which the company will be required to maintain.

SKP Comments:

While it is a welcome step that the government is seriously looking at opening up the retail sector, it seems that the current regulations too are a far from reality. We are unsure if there are any large brand owners that would be keen to sell in the course of retail considering there is a strong condition of domestically sourcing 30% of the value of the products.
 
For further queries e-mail - manoj.gidwani@skpgroup.com