A Note on FDI in Retailing in India

Indian Retail Sector -FDI In Retailing

While FDI in retailing Is not allowed, some of the international player are already here
While FDI is not allowed in retailing, the regressive policy has not deterred some prominent global retailers from setting up operations in India. The key routes that Cos. are taking are:

The Indian JV partner is a export house (such as Total Health Care which was taken over by an Indian company later on) Local manufacturing (such as McDonalds) Franchising and Licensing Route Sourcing from Small scale sector Cash and carry operations (such as Metro, Shoprite South Africa)

The present stipulations do not prohibit FIIs from investing in sectors where FDI is banned, including retail, real estate and agriculture (barring tea plantations). Till 1997, the limit for FII investment in all sectors was 24 per cent, which was then increased to 30 per cent. In 2000, the limit was enhanced to 40 per cent under a special procedure that required an approval by the board of directors and a special resolution by the general body of a company. The FII ceiling, under the special procedure, was further enhanced in March 2001 from 40 to 49 per cent and was subsequently raised to the sectoral cap in September 2001

Indian Retail Sector -FDI In Retailing

FDI In Retailing Ministry of Commerce
The following text on FDI in Trading has been reproduced from the Guidelines issued by the Ministry of Commerce: FDI upto 50% through automatic approval only when the undertaking concerned should be an export house, trading house, super trading house or a star trading house registered under the provisions of the Export and Import policy in force i) 100% allowed through FIPB route only when the Co. is engaged in exports

bulk imports with export/ex-bonded warehouse sales cash and carry wholesale trading

other import of goods or services provided at least 75% is for procurement and sale of goods and services among the companies of the same group and not for third party use or onward transfer/distribution/sales.

ii) The following kind of Trading are also permitted ,subject to provision of EXIM Policy: a. companies for providing after sales services (that is not trading per se)

b. domestic trading of products is permitted at the wholesale level by such trading companies who wish to market manufactured products on behalf of their joint ventures in which they have equity participation in India.
c. trading of hi-tech items/items requiring specialized after sales service.

Indian Retail Sector -FDI In Retailing

FDI In Retailing Ministry of Commerce
d. e. trading of items for social sector trading of hi-tech, medical and diagnostic items.

f. trading of items sourced from the small-scale sector which, based on technology provided and laid down quality specifications, a company can market that item under its brand name. g. domestic sourcing of products for export.

h. test marketing of such items for which a company has approval for manufacture provided such test marketing facility will be for a period of two years, and investment in setting up manufacturing facilities commences simultaneously with test marketing. i. FDI upto 100% permitted for e-commerce activities subject to the condition that such companies would divest 26% of their equity in favor of the Indian public in 5 years, if these companies are listed in other parts of the world. Such companies would engage only in business to business (B2B) e-commerce and not in retail trading. FDI is not permitted in retail trading activity