Reforms in India: Government Allows FDI in Multi Brand Retail
By Dezan Shira & Associates
Posted: 27th September 2012 09:41
The Indian government has allowed 51 percent foreign direct investment (FDI) in multi-brand retail, a major reform awaited by many multinational retail chains. The move permits global firms such as Walmart, Metro, and Carrefour to establish shop with a local partner and sell directly to consumers for the first time, which could transform India’s US$450 billion retail market and drop inflation.
The most important point of the guidelines is that retail sales outlets may only be set up in those states which have agreed (or will agree in the future) to allow FDI in multi-brand retail under this policy. The establishment of the retail sales outlets must be in compliance with the applicable state laws and regulations, such as the Shops and Establishments Act.
However, there is a clause in the decision that authorization should be taken from the Foreign Investment Promotion Board (FIPB) for investments. Additionally, the overseas investor should make a minimum investment of US$100 million, 50 percent of which should be invested in “back-end infrastructure.” Also, 30 percent of the products must be procured from small-scale industries.
The rule also states that fresh agricultural products – including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products – may be unbranded. For the purpose of FDI in multi-brand retail, the note identifies small-scale industries as units which have a total plant and machinery investment not exceeding US$250,000 (around Rs. 1.25 crore). This investment submits to the value at the time of installation, without providing for reduction. The foreign retail chains will be required to comply with self-certification. They have to keep all records, and the government will have the first right to acquire agricultural products.
For the back-end investment, it explains that investments made towards processing, manufacturing, distribution, design improvement, quality-control, cold chain, warehouses and packaging, will comprise of back-end. Retail chains will be permissible only in cities with a population of more than 1 million as per the 2011 Census. Presently in India, there are 51 cities with a population of more than 1 million, as per the 2011 Census.
So far, the following are the state-by-state positions on FDI in multi brand retail in India. Jammu and Kashmir support the FDI, but have not given the authorization in writing.
States in favor
- Andhra Pradesh
- Daman & Diu
- Dadar & Nagar Haveli (Union Territory)
- Jammu and Kashmir
- West Bengal
- Madhya Pradesh
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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