The Indian Government has announced what would appear to be
final details of the 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. However the
reforms that would have allowed foreign-owned supermarkets to
operate have been shelved, at least for the time being.
Less than a month after suspending the implementation of various
reforms relating to direct foreign investment (FDI) in the retail
sector,the Indian Government has now confirmed that it will 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.
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 that was raised when amendments were proposed to the laws
affecting multi-brand ownership), however 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 new conditions on FDI are effective immediately and will be
included in the next Circular on Consolidated FDI Policy, due to be
released on 31 March 2012.
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
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