Pradhan: Retailing Management, 4/e 

Copyright © 2012 by McGraw‐Hill Education (India) Private Limited 
 

APPENDIX 1
FOREIGN DIRECT INVESTMENT IN RETAIL
A PERSPECTIVE

The Objective of Foreign Direct Investment in Retail

Foreign Direct Investment (FDI) in India is promoted with the intention of attracting and
promoting foreign investment in order to supplement domestic capital, technology and skills, for
accelerated economic growth.
The Government of India has put in place a policy framework on Foreign Direct Investment,
which is embodied in the Circular on Consolidated FDI Policy. The Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes
policy pronouncements on FDI through Press Notes/ Press Releases which are notified by the
Reserve Bank of India as amendments to the Foreign Exchange Management Regulations, 2000.

The Ministry of Commerce and Industry, Government of India is the nodal agency for motoring
and reviewing the FDI policy on continued basis and changes in sectoral policy/sectoral equity
cap. The FDI policy is notified through Press Notes by the Secretariat for Industrial Assistance
(SIA), Department of Industrial Policy and Promotion (DIPP).

Key Definitions

FDI means investment by non-resident entity/person resident outside India in the capital of an
Indian company under Schedule 1 of Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations 2000.

FEMA means the Foreign Exchange Management Act 1999 (42 of 1999). 1

FIPB means the Foreign Investment Promotion Board constituted by the Government of India.

Foreign Institutional Investor (FII) means an entity established or incorporated outside India
which proposes to make investment in India and which is registered as a FII in accordance with
the SEBI (FII) Regulations 1995.

FDI in Retail: Background

                                                            
1
 http://finmin.nic.in/law, accessed 23/01/12 

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Pradhan: Retailing Management, 4/e 
Copyright © 2012 by McGraw‐Hill Education (India) Private Limited 
 

In the year 1997, the Government of India permitted the inflow of 100 % FDI in the cash and
carry wholesale trading, under the government approval route. This was subsequently brought
under the automatic route in 2006. Between April 2000 and March 2010, FDI inflows of US
$1.779 billion (Rs. 7799 crore) were received in the sector. This comprised 1.54 % of the total
FDI inflows received during the period. 2

FDI in Single-Brand Retailing was permitted to the extent of 51% in 2006. Since then, a total of
94 proposals have been received till May, 2010. Of this, 57 proposals were approved. An FDI
inflow of US $194.69 million (Rs. 901.64 crore) was received between April 2006 and March
2010, comprising 0.21% of the total FDI inflows during the period, under the category of single-
brand retailing. 3

Press Note 4 of 2006 issued by DIPP and consolidated FDI Policy issued in October 2010
provided the sector specific guidelines for FDI with regard to the conduct of trading activities.
They are summarised as:

1. FDI up to 100% for cash and carry wholesale trading and export trading allowed under
the automatic route.
2. FDI up to 51 % with prior Government approval (i.e. FIPB) for retail trade of ‘Single-
Brand’ products, subject to Press Note 3 (2006 Series).
3. FDI is not permitted in Multi-Brand Retailing in India.

FDI in Multi-Brand Retail

In July 2010, Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce
circulated a discussion paper 4 on FDI in multi-brand retail. It addressed the concerns raised by
various groups and also highlighted certain concerns of the existing set up in India, the chief
among which were:

1. A lack of investment in the logistics of the retail chain, leading to an inefficient market
mechanism.
2. Domination of the value chain by Intermediaries who often flout mandi norms and lack
of transparency in pricing.
3. The efficacy of public procurement and the PDS set-up and the bill on food subsidies.
4. The MSME sector had also suffered due to lack of branding and of avenues to reach out
to the vast world markets.

                                                            
2
 Discussion paper on Foreign Direct Investment in Multi–Brand Retail Trading, pg 2 
3
Discussion paper on Foreign Direct Investment in Multi-Brand Retail Trading, pg 2
4
FDI Multi-Brand Retail Trading, Department of Industrial Policy and Promotion (DIPP) -
http://www.dipp.nic.in/English/Discuss_paper/Feedback.aspx, accessed 25/01/2012

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Pradhan: Retailing Management, 4/e 
Copyright © 2012 by McGraw‐Hill Education (India) Private Limited 
 

The view taken was that a significant amount of investment would be required to develop the
infrastructure to support the development of retail in the country. Various studies 5 were
commissioned in this regard and most of them recommended that FDI in retail be permitted as it
was seen as a tool which would enable modernisation of the supply chain, building of
infrastructure and benefits to the farmers from direct sales and the availability of finance to the
existing retailers.

The Cabinet on November 24, 2011, cleared the proposal for 51% foreign direct investment in
multi-brand retail and 100% foreign direct investment in single-brand retail. This led to a furor in
Parliament and a series of nationwide protests. The Centre was forced to suspend FDI in multi-
brand retail and has now issued a notification allowing 100% FDI in single-brand retail.

As per the Press Note No.1 (2012 Series), the Government of India reviewed the extant policy on
FDI and decided that FDI, up to100%, under the government approval route, would be permitted
in Single-Brand Product Retail Trading, subject to specified conditions, as indicated.

1. Foreign Investment in Single-Brand Product Retail Trading is aimed at attracting investments

in production and marketing, improving the availability of such goods for the consumer,
encouraging increased sourcing of goods from India, and enhancing competitiveness of Indian
enterprises through access to global designs, technologies and management practices.

2. FDI in Single-Brand Product Retail Trading is subject to the following conditions:

a. Products to be sold should be of a 'Single-Brand' only.

b.Products should be sold under the same brand internationally i.e. products should be sold
under the same brand in one or more countries other than India.

c. 'Single-Brand' Product Retail Trading would cover only products which are branded
during manufacturing.

d.The foreign investor should be the owner of the brand.

e. In respect of proposals involving FDI beyond 51%, mandatory sourcing of at least 30%
of the value of products sold would have to be done from Indian “small industries/ village
and cottage industries, artisans and craftsmen”. “Small industries” would be defined as
industries which have a total investment in plant and machinery not exceeding US $1.00
million. This valuation refers to the value at the time of installation, without providing for
depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall
not qualify as a 'small industry' for this purpose. The compliance of this condition will be
                                                            
5
Discussion paper on Foreign Direct Investment in Multi-Brand Retail Trading , pg 17

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ensured through self-certification by the company, to be subsequently checked, by

statutory auditors, from the duly certified accounts, which the company will be required
to maintain.

Some of the features of both the policies are indicated in Table 1.

Table 1: Key Features of the policy

Parameters Multi–Brand Retail Single-Brand Retail

Minimum Investment of $100 Foreign Investor should be the
Ownership million by foreign investor owner of the brand
The brand should be sold
under the same name
internationally, and branding
should be done during
manufacturing
A minimum of 50% of
Investments investment to be made in back
end infrastructure
A minimum of 30% of the In case of FDI above 51%,
sourcing to be done from 30% sourcing to be done from
Sourcing Indian small and medium Indian small and medium
small scale industries small scale industries
Government to have the first
right of farm produce
Restricted to cities with a
Store locations population of one million or
more
Source: Press Information Bureau, ICRA

It may be stated that the Parliamentary Standing Committee had studied the policy and premier
research bodies on policy and economics were also exhaustively consulted. The Committee's
report was tabled in Parliament, late 2009. For the record, the Standing Committee had
unanimously recommended against FDI in multi-brand retail.

Note: The data has been collated by Priyanka Shetty, PGDM RM (2010-12) and Shardul Bakre, PGDMRM (2011-
13), students of Welingkar Institute of Management Development & Research, Mumbai. 

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