Over the years, the Indian retail trading business has been
perceived as a lucrative investment destination by global
investors. Most of the international brands have either entered
Indian markets or are looking at setting up shops in India soon.
The recent policy changes introduced by the current BJP-led central
government have certainly given a boost to global investors'
sentiment towards investing in India.
In 2006, the Government of India (Government) had allowed 51%
foreign direct investment (FDI) in single brand retail trading
(SBRT) under the government approval route (i.e. with the prior
approval of the Department of Industrial Policy & Promotion
(DIPP) / Foreign Investment Promotion Board (FIPB)). The SBRT
sector was further liberalised in (i) January 2012, when the
Government permitted 100% FDI in SBRT under the approval route; and
(ii) August 2013, when FDI in SBRT was allowed upto 49% under the
automatic route (i.e. without any prior approval of the DIPP /
FIPB), and beyond 49% under the government approval route.
While FDI by non-residents in the SBRT sector is subject to the
prescribed conditions under FDI Policy, these have also been eased
by the Government in recent years. Some of the existing conditions
include: (i) products must be sold under 'single brand
only'; (ii) products should be branded during manufacturing;
(iii) products are required to be sold under the same brand
internationally; (iv) local sourcing requirement of 30% of value of
goods purchased; for FDI beyond 49%; (v) foreign entity or
entities, other than the brand owners, may also invest in the SBRT
sector pursuant to a legally tenable agreement with the brand
DIPP's New Clarifications
To further liberalise the extant conditions and attract FDI in
the SBRT sector, the DIPP in its clarification dated 7 July 2015
has set out the following:
The non-resident entity or entities,
whether owner of the brand or otherwise, can undertake SBRT
business in India through one or more wholly owned subsidiaries or
joint ventures in India.
The consolidated FDI Policy released by the DIPP on 12 May 2015
(FDI Policy) was silent on this aspect. This specific clarification
comes as a much awaited relief and will provide further structuring
options to foreign players in the SBRT sector.
DIPP has also clarified that the
conditions for FDI in the SBRT sector under the FDI Policy will
equally apply to 'Indian brands' receiving FDI in
The above clarifications are without prejudice to other
conditions applicable to the SBRT sector under the FDI Policy.
Since the FDI policy in respect of the SBRT sector has evolved
gradually, there are still nascent policy issues which need to be
addressed for commercial ease of doing business in this sector.
Accordingly, the DIPP's clarifications are a welcome move;
especially since the FDI Policy was silent on these aspects. Such
clarifications on policy matters from the DIPP will only enhance
the investors' faith in the Indian economy.
Having said this, there are still certain issues (including
policy matters) on which the FDI Policy in respect of FDI in SBRT
is silent or ambiguous and require clarity. For example, it is
unclear whether a foreign retailer can sell products under various
sub-brands through one retail entity in India. Further, it is not
clear whether foreign retailers can have retail entities and
franchisee arrangements in parallel in India. However, given the
current Government's commitment towards growth of the Indian
economy and attracting FDI, we can hope for more clarifications
being issued soon on such aspects in the FDI Policy which need
The content of this document do not necessarily reflect the
views/position of Khaitan & Co but remain solely those of the
author(s). For any further queries or follow up please contact
Khaitan & Co at firstname.lastname@example.org
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