Foreign Direct Investment
in Retail Trading
We are pleased to enclose our Regulatory Alert relating to FDI in Retail. The alert provides information about the FDI policy in Multi brand and Single Brand retail trade based on the GOI announcement on14 September 2012.
Salient features of the FDI in MBPRT
FDI in MBPRT in all products is permitted upto 51% with Government approval and will require amongst others, compliance with the following:
- Minimum Investment: Minimum amount to be brought in by a Foreign Investor would be USD 100 million.
- No FDI in MBPRT in NO GO States: Retail sales outlets may be set up only in those States which have agreed or agree in future to allow FDI in MBPRT under the FDI policy. Subject to FDI policy and location requirements, the respective State government to decide where a multi-brand retailer, with FDI, is permitted to establish its sales outlets within the State.
- The establishment of retail sales outlets will be in compliance of applicable State laws, regulations such as the Shops and Establishments Act etc.
- Locations 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 such cities. Accordingly, 53 Indian cities qualify for MBPRT with FDI
- Retail sales 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 choice 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 cities.
- 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 facilities such as transport connectivity and parking.
- For the rest of India, current FDI policy regime will continue. As per the current FDI regime, 100% FDI is allowed upto wholesale cash and carry point from which franchise / small retailers are able to source products for sale to the public at large.
- 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 be 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 depreciation.
- If at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose.
- Unbranded Products: Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded.
- Agricultural Products: First right to procure agricultural products will lie with the Government.
- Backend Infrastructure:
- At least 50% of total FDI brought in shall be invested in 'backend infrastructure' within 3 years of the induction of FDI.
- ‘Back-End Infrastructure’ will include capital expenditure on all activities, excluding that on front-end units. For instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure. The foreign investor would be accountable for proper implementation of the condition.
- Self-Certification by Companies:
- Companies to self-certify and ensure compliance of the stipulated conditions which could be cross checked as and when required.
- Foreign Investors may also be required to maintain accounts, duly certified by statutory auditors.
- Internal Trade Reforms: A high level group may be constituted by GOI to examine various issues concerning internal trade and make recommendations for internal trade reforms as “Trade and Commerce within the State” is the prerogative of the states under the Constitution of India.