eAlert! of 20 December 2011 reported the Indian
Government's halt on its proposed major reforms to foreign
direct investment (FDI) in India's retail sector. The
Government's original proposal of 24 November 2011 would have
allowed foreign multi-brand retailers to participate in retail
joint ventures as well as single brand foreign retailers to own
100% of their operations in India.
The Indian Government has again reviewed its FDI policy and in a
press note released on 10 January 2012, announced that it has now
decided to allow FDI of up to 100% by foreign companies into single
brand retail in India. Previously, foreign single brand companies
could only own up to 51% in an Indian single brand retail joint
venture with an Indian partner.
But there's a catch with the new policy. Foreign single
brand companies that wish to invest in more than 51% in the single
brand retail joint venture, or own the single brand joint venture
outright, are required to ensure that 30% of the value of the
single brand products sold are sourced from Indian "small
industries/village and cottage industries, artisans and
craftsmen". "Small industries" are defined as
industries which have a total investment in plant and machinery of
US$1 million or less. The announcement is also unclear on whether
the 30% requirement applies to a retailer's products sold only
in India or worldwide.
The existing rules for the foreign company continue to apply,
products must be sold worldwide by the foreign company under a
products must be branded during the manufacturing process
the foreign company must be the owner of the brand.
This development takes immediate effect and is a faltering step
towards greater access to new FDI in India. The local requirement
will suit certain retail brands (eg food retailers). However
retailers who source/manufacture single brand products in other
countries (eg Australia, China or the United States of America)
will be ineligible from owning more than 51% of the single brand
retail joint venture. India's market opening is still
compromised by the politics of its large labour force but each step
forward should be encouraged.
Middletons' India Group will continue to monitor
developments to changes in India's FDI policy and will keep you
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.