On September 14, 2012 the Cabinet decided to permit Foreign
Direct Investment ("FDI") in multi-brand retail but the
exact terms and conditions attached to this policy has not yet been
released officially through a Notification by the Department
of Industrial Policy and Promotion of the Ministry of Commerce,
Government of India. The multi-brand retail sector in India mainly
refers to large supermarket chains. The large international retail
chains such as ASDA, Carrefour's, Tesco etc have been waiting
years to be able to hold shares in an Indian company which can
open supermarkets that can sell directly to the public.
This has generated great excitement amongst some retailers and
their advisers, but it may be that their excitement is a little
premature. The devil will be in the detail and the detail is not
There have been other false dawns. The Government decided
on November 24, 2011 to allow FDI in multi-brand retail but had to
defer their decision/policy due to strong opposition from various
political parties including members of the coalition and local
vested interests (such as middlemen and small family
So what detail is required? Conditions will be attached to any
foreign retailers to invest in the multi-brand retail
sector. Several have been discussed, but none yet decided.
Those which have been discussed so far include:
The foreign retailer can hold a maximum of 51% of shares in the
Specific consent from the Foreign Investment Promotion Board
(FIPB), Government of India would have to be sought.
A foreign investor would need to make a minimum investment of US
$ 100 million.
50% of the investment has to be used to develop back end
infrastructure (such as cold storage, food processing, manufacture
etc) within three years.
Outlets have to be located in cities with at least a population
of 1 million.
Another area of great uncertainty is that each State government
will be able to decide whether or not to allow FDI in multi-brand
retail in their State and that local State laws will be applicable.
There are 28 States and 7 Union Territories in India. This may
not be as bad as it sounds because the State governments who have
so far opposed the policy will not be able to obstruct
international supermarket outlets from opening and operating in the
whole of India and retailers can go to States that are
We are unable to confirm whether these conditions will feature
in the policy due to be announced or whether there will be
significant modifications made.
So, at this point foreign retailers must not assume that they
can now establish themselves in India without difficulties. We
will keep you informed as matters become clearer.
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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