100% FDI in single brand retail trade in India under automatic route

100% FDI in single brand retail trade in India under automatic route

Retail

Ritul Patwa

Ritul Patwa

18 Jan 2018, 14:54 — 4 min read

The Union Cabinet chaired by Prime Minister Narendra Modi has approved 100% FDI for Single Brand Retail Trading (SBRT) in India in its meeting on 10th January, 2018.

 

The key decisions of the cabinet meeting are listed below:

 

  • Extant FDI policy on SBRT allows 49% FDI under automatic route, and FDI beyond 49% and up to 100% through Government approval route. It has now been decided to permit 100% FDI under automatic route for SBRT.

 

  • It has been decided to permit single brand retail trading entities to set off incremental sourcing of goods from India for global operations during initial 5 years, beginning 1 April of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India. For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in INR terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies. After completion of this five year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.

 

  • A non-resident entity or entities, whether owner of the brand or otherwise, is permitted to undertake ‘single brand’ product retail trading in the country for the specific brand, either directly by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking single brand retail trading and the brand owner.

 

What are the major changes in the policy for FDI in single brand retail trade?

 

  1. No approval is required for FDI upto 100% in SBRT – Previously FDI was restricted to 49% under automatic route and beyond this approval was mandatory

  2. Under the FDI Policy – In cases where the FDI is above 51% in an entity engaged in SBRT, there is a requirement for sourcing of 30% of the value of goods purchased, from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors. Under the latest decision taken by the Union Cabinet, this requirement can be set off for first 5 years of operations against “Incremental Sourcing of Goods from India for Global Operations” by the non-resident entities undertaking SBRT entity or their group companies.

 

This can be understood by the following example:-

 

I) The total value of goods purchased by the Indian company in which FDI for SBRT has been done is as below:

 

1st year – INR 100 crores

2nd year – INR 120 crores

3rd year – INR 150 crores

4th year – INR 200 crores

5th year – INR 300 crores

 

II) Requirement for local sourcing as per 30% clause is as below:

 

1st year – INR 30 crores

2nd year – INR 40 crores

3rd year – INR 45 crores

4th year – INR 60 crores

5th year – INR 90 crores

 

III) Set-Off option for incremental sourcing of goods from India for global operations, under which the Indian entity will be allowed to forego the local sourcing as per section (II) above are as below:

 

1st year – INR 30 crores

2nd year – INR 70 crores (30 + 40)

3rd year – INR 105 crores (70 + 45) 

4th year – INR 165 crores (105 + 60)

5th year – INR 255 crores (165 + 90)

 

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker. 

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