The Indian Department of Industrial Policy and Promotion has
just released its updated Foreign Direct Investment Policy. The
Indian Government earlier this year announced changes to the laws
affecting foreign investment in the retail sector, paving the way
for foreign retailers selling single branded products to move into
India without having to partner with an Indian company. The
previously announced reforms that would have allowed foreign-owned
supermarkets to operate have been shelved, at least for the time
Less than a month after suspending the implementation of various
reforms relating to direct foreign investment (FDI) in the retail
sector,the Indian Government confirmed that it would proceed with
its previously announced changes, but only in relation to the FDI
laws relating to single brand retailing. Prior to the changes
announced on 10 January 2012, foreign investors were permitted to
invest in the retail sector in India, provided that they were
involved in single brand retail, their equity stake in the relevant
investment company was no greater than 51 per cent, and they met
various other conditions specified by the Indian Government. The
Indian Government revised this position and announced on 10 January
2012 that FDI up to 100 per cent will now be permitted for single
brand product retailing. This has now been confirmed, but there are
a number of conditions to be satisfied. The updated Foreign Direct
Investment Policy sets out these conditions.
A key condition that must be satisfied is that the foreign
investor must be the owner of the brand under which its products
will be sold in India. Another condition is that if the foreign
investor owns more than 51 per cent in the relevant investment
company, it must source at least 30 per cent of the value of
products sold from Indian "small industries/village and
cottage industries, artisans and craftsmen". The Government
has indicated that "small industries" will be industries
that have total investment in plant machinery not exceeding US$1
million. This condition has clearly been included to protect the
interests of India's local markets (a major issue of
concern was raised when amendments were proposed to the laws
affecting multi-brand ownership), however it may have a
considerable impact on some potential investors. While some
international retailers already source many products from India,
others are likely to have issues sourcing products that meet their
quality standards or requirements.
The proposed changes to the FDI laws relating to single brand
retail are a positive step forward. However foreign retailers
considering moving into India without an Indian partner need to
carefully consider whether they can meet the various conditions
imposed on foreign investors, including the conditions referred to
above, and what overall impact this would have on their business.
In practice it is often possible to navigate around strict
compliance with some of the conditions.
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.
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