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Clarifications on FDI in single brand retail trading
31
Aug '17
The Department of Industrial Policy and Promotion (DIPP), ministry of commerce and industry, Government of India, has brought out a consolidated foreign direct investment (FDI) policy document. The document mentions intent and objective in attracting foreign investment in various sectors, and also lists the conditions that need to be met.

In reference to single brand product retail trading, the document states that foreign investment is aimed at attracting investments in production and marketing, improving the availability of such goods for the consumer, encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian enterprises through access to global designs, technologies and management practices.

However, FDI in single brand product retail trading would be subject to six conditions. First, products to be sold should be of a ‘single brand’ only. Second, 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. Third, ‘single brand’ product-retail trading would cover only products which are branded during manufacturing.

Fourth, a non-resident entity or entities, whether owner of the brand or otherwise, shall be permitted to undertake ‘single brand’ product retail trading in the country for the specific brand, directly or through a legally tenable agreement with the brand owner for undertaking single brand product retail trading. The onus for ensuring compliance with this condition will rest with the Indian entity carrying out single brand product retail trading in India. The investing entity shall provide evidence to this effect at the time of seeking approval, including a copy of the licensing/franchise/sub-licence agreement, specifically indicating compliance with this condition. The requisite evidence should be filed with the RBI for the automatic route and to competent authority for cases involving approval.

Fifth, in respect of proposals involving foreign investment beyond 51 per cent, sourcing of 30 per cent of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. 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. This procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning 1st April of the year of the commencement of the business i.e. opening of the first store. Thereafter, it would have to be met on an annual basis. For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of foreign investment for the purpose of carrying out single-brand product retail trading. However, sourcing norms will not be applicable up to three years from commencement of the business i.e. opening of the first store for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.

Lastly, subject to all the five conditions mentioned, a single brand retail trading entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce.

The seek permission of the Indian government for FDI exceeding 49 per cent in a company which proposes to undertake single brand retail trading in India, application should be made to the Secretariat for Industrial Assistance (SIA) in the DIPP, 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. In case of FDI up to 49 per cent, the list of products/product categories proposed to be sold except food products would be provided to the RBI.  (RKS)

Fibre2Fashion News Desk – India


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