As per the current regulatory regime, retail trading (except under single-brand product retailing — FDI up to 51 per cent, under the Government route). India being a signatory to World Trade Organisation’s General Agreement on Trade in Services, had to open up the retail trade sector to foreign investment.
In 1997, FDI in wholesale, with 100 per cent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 per cent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.
In 1997, FDI in wholesale, with 100 per cent ownership was allowed under the Government approval route. It was brought under the automatic route in 2006. 51 per cent investment in a single brand retail outlet was also permitted in 2006. FDI in Multi-Brand retailing is prohibited in India.
In 2004, The High Court of Delhi defined ‘retail’ as a sale for final consumption in contrast to a sale for wholesale. Thus, retailing can be said to be the interface between the producer and the individual consumer buying for personal consumption. This excludes direct interface between the manufacturer and institutional buyers such as the government and other bulk customers.
“Single Brand” has not been categorically defined by the government anywhere, however, FDI in ‘Single brand’ retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.
“Multi Brand’ retail implies that a retail store with a foreign investment can sell multiple brands under one roof. In July 2010, DIPP, Ministry of Commerce circulated a discussion paper on allowing FDI in multi-brand retail. This paper, if implemented, would open the doors for global retail giants to enter and establish their footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores in India.
Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for proceeding and reviewing the FDI. This FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (‘FIPB’) would be required.
FDI Policy with Regard to Retailing in India
Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 provide the sector specific guidelines for FDI:
FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route
FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series)
FDI is not permitted in Multi Brand Retailing in India.
Entry Options prior to FDI Policy
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players had been operating in the country. Some of entrance routes used were:-
Franchise Agreements - Easiest way to enter the Indian market, under this FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks & Spencer, have entered Indian marketplace through this route.
Cash And Carry Wholesale Trading - 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. Metro AG of Germany was the first significant global player to enter India through this route.
Strategic Licensing Agreements - Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd.
Manufacturing and Wholly Owned Subsidiaries - The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail.
“Single Brand” has not been categorically defined by the government anywhere, however, FDI in ‘Single brand’ retail implies that a retail store with foreign investment can only sell one brand. For example, if Adidas were to obtain permission to retail its flagship brand in India, those retail outlets could only sell products under the Adidas brand and not the Reebok brand, for which separate permission is required. If granted permission, Adidas could sell products under the Reebok brand in separate outlets.
“Multi Brand’ retail implies that a retail store with a foreign investment can sell multiple brands under one roof. In July 2010, DIPP, Ministry of Commerce circulated a discussion paper on allowing FDI in multi-brand retail. This paper, if implemented, would open the doors for global retail giants to enter and establish their footprints on the retail landscape of India. Opening up FDI in multi-brand retail will mean that global retailers including Wal-Mart, Carrefour and Tesco can open stores in India.
Foreign Investment in India is governed by the FDI policy announced by the Government of India and the provision of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (‘RBI’) in this regard had issued a notification, which contains the Foreign Exchange Management (Transfer or issue of security by a person resident outside India) Regulations, 2000. This notification has been amended from time to time.
The Ministry of Commerce and Industry, Government of India is the nodal agency for proceeding and reviewing the FDI. This FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance (SIA), Department of Industrial Policy and Promotion (DIPP). The foreign investors are free to invest in India, except few sectors/activities, where prior approval from the RBI or Foreign Investment Promotion Board (‘FIPB’) would be required.
FDI Policy with Regard to Retailing in India
Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010 provide the sector specific guidelines for FDI:
FDI up to 100% for cash and carry wholesale trading and export trading allowed under the automatic route
FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single Brand’ products, subject to Press Note 3 (2006 Series)
FDI is not permitted in Multi Brand Retailing in India.
Entry Options prior to FDI Policy
Although prior to Jan 24, 2006, FDI was not authorised in retailing, most general players had been operating in the country. Some of entrance routes used were:-
Franchise Agreements - Easiest way to enter the Indian market, under this FDI (unless otherwise prohibited) is allowed with the approval of the Reserve Bank of India (RBI) under the Foreign Exchange Management Act. Apart from quick food bondage identical to Pizza Hut, players such as Lacoste, Mango, Nike as good as Marks & Spencer, have entered Indian marketplace through this route.
Cash And Carry Wholesale Trading - 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. Metro AG of Germany was the first significant global player to enter India through this route.
Strategic Licensing Agreements - Some foreign brands give exclusive licences and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores, or enter into shop-in-shop arrangements or distribute the brands to franchisees. Mango, the Spanish apparel brand has entered India through this route with an agreement with Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Foodlands Pvt. Ltd.
Manufacturing and Wholly Owned Subsidiaries - The foreign brands such as Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail.
A Start Made
Walmart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. It plans to have 15 stores by March and enter new states like Andhra Pradesh , Rajasthan, Madhya Pradesh and Karnataka.
Duke, Wallmart’s CEO opined that FDI in retail would contain inflation by reducing wastage of farm output as 30% to 40% of the produce does not reach the end-consumer. “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer,” Duke said, adding, that a similar trend was noticed when organized retail became popular in the US.
Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a blessing in disguise for the economy.
Walmart has a joint venture with Bharti Enterprises for cash-and-carry (wholesale) business, which runs the ‘Best Price’ stores. It plans to have 15 stores by March and enter new states like Andhra Pradesh , Rajasthan, Madhya Pradesh and Karnataka.
Duke, Wallmart’s CEO opined that FDI in retail would contain inflation by reducing wastage of farm output as 30% to 40% of the produce does not reach the end-consumer. “In India, there is an opportunity to work all the way up to farmers in the back-end chain. Part of inflation is due to the fact that produces do not reach the end-consumer,” Duke said, adding, that a similar trend was noticed when organized retail became popular in the US.
Many of the foreign brands would come to India if FDI in multi brand retail is permitted which can be a blessing in disguise for the economy.
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