100% FDI in Single Brand Retail

Department of Industrial Policy & Promotion (DIPP) has issued Press Note No.1 (2012 Series) dated 10.1.2012 through which it allows 100% FDI to be invested in Single Brand Retail.  International companies are now free to invest upto 100% in Single Brand Retail.  The following are the main conditions laid down for this 100% FDI investment

1. Products sold should be of Single Brand only
2. Products should be sold under the same brand internationally
3. The products should be branded during manufacture
4. The foreign investor should be the owner of the brand (not a person paying Royalty for the same)
5. If investment is more than 51% then 30% of the product sourcing should be done only through Indian Small / Cottage industries whose investment does not exceed USD 1 million in Plant & Machinery

Though the conditions stipulated above are quite stringent, there is always scope once the scheme is kicked in there will be further relaxation. 

Currently in Single Brand Retail sector there is not much investment due to the 51% cap, in fact as per statistics provided by Economic Times in its 11 Jan edition in the last three and half years only Rs.196 crores were brought in as FDI in Single Brand Retail, which surely does not talk about success of this scheme.  I also doubt by bringing in the above 5 conditions to run along with 100% FDI in Single Brand Retail there will be substantial flow of FDI.  It will be sometime before both the Government and FDI's get their act together and give this sector a much needed boost

Extension of time for receipt of Export Proceeds to 1 year

RBI vides its circular

A.P. (DIR Series) Circular No.40, Dated- November 01, 2011

has yet again extended to twelve months (normal period six months) the period of realization and repatriation to India the full value of exports of goods or services. This effectively means that if an export is made on 1.10.2011 the proceeds of this export can be received within 1 year (ie) till 30.09.2012. This extension is applicable upto 30th September 2012.

This relaxation which is being now provided for almost 3 years now, is to help Indian exporters tide over American & European crises.

Foreign Direct Investment (FDI) IN TRADING

Chapter 6.1 of Consolidated FDI Circular 2 of 2011 dated 1^st October 2011, lists prohibited sectors for FDI, topping the list is

“Retail Trading (except single brand product retailing, where 51% FDI Is allowed)

Clearly no FDI is permitted in Retail trading (B2C) except the exception of single brand product trading. 

Does this mean FDI will not be allowed in trading at all?  The answer is NO.

As per Chapter 6.2.16 - 100% FDI is allowed in

“Cash & Carry Wholesale Trading / Wholesale Trading (including sourcing from Medium & Small Enterprises)”

Cash & Carry Whole Sale Trading / Wholesale trading means:

“Sale to Retailers, industrial, commercial or professional business and not to consumers directly, in short All B2B transactions irrespective of the size or volume of sales”.

Salient Features of FDI in Cash & Carry Wholesale trade

1.      Wholesale trade should be made only to buyers who have either

a.      A VAT / Excise registration or

b.      A Trade licence under Shops & Establishments Act or

c.      A Trade licence for carrying out retail trading from Government Authorities or

d.      A certificate of Incorporation as a Trust or Society and materials purchased for their self consumption

2.      It is the responsibility of the FDI Venture to keep all details of the buyers and buyer’s compliance with any one of the points made in point 1 above

3.      Wholesale trade is not permitted among group companies beyond 25% of the total turnover of the FDI venture

4.      Under Wholesale Trade the FDI venture is free to extend credit for his sales subject to applicable regulations, if any

5.      Cannot open retail outlets

6.      Cannot sell to consumers directly only B2B allowed

Conclusion

100% FDI is possible in B2B ventures, 51% FDI is allowed in Single brand retailing

Consolidated FDI Policy - India - October 2011

Ministry of Commerce & Industry, Department of Industrial Policy & Promotion has issued Consolidated "Foreign Direct Investment Policy" effective 1st October 2011. 

This consolidated FDI Policy provides all details relating to FDI into India. 

The detaild policy can we viewed at the link below.

http://dipp.nic.in/English/Policies/FDI_Circular_02_2011.pdf