FDI in Retail in India
Currently, the retail industry of India (covering both the single-brand and multi-brand retail) is worth about US $500 billion, and by this economic size, this is regarded as one of the top five largest and fastest thriving retail markets in the whole world; other competitive retail destinations being China and Dubai. This vast, varied, but largely unorganized retail market of India is growing fast with a high annual growth rate of more than 10%, and contributes about 15% to the national GDP of India. The recent declaration of the Government of India to allow FDI in the single brand retail up to 100%, and that in the multi-brand retail up to 51%, is certainly immensely supportive to the rapid growth of the retail sector of India in near future. Thus, the scope of fdi in retail in india is certainly extensive and highly promising, especially in the organized retail sector. This rich and very beneficial webpage provides very fertile information about making FDI in India in the single-brand and the multi-brand retail industries by foreigner investors and retailers located in countries worldwide.
The retail sector of economy is involved in selling and merchandising of the finished goods and products produced by all sectors of economy, to the end-user consumers and customers, and therefore, encompasses all those individuals, companies, commercial complexes, agencies and organizations, etc., who are engaged in these selling and merchandising activities in places all across a country. As the majority of economic sectors of India (which contains about 17.5% of the world population) have been steadily progressing fast for past few decades resulting in an annual GDP growth rate of about 8%, the retail sector of India is bound to thrive rapidly in the present and next decades. This development and growth will be highly remarkable in the organized retail sector of India, the size of which at present is about US $100 billion.Separate information for both the FDI in the single-brand and multi-brand retails is provided in the sections below. However, some things and processes are common for making FDI in both these types of retail trading in India, which are the following:
- FDI inflows are to be made strictly as per the rules, regulations, and provisions related with FDI in India, advised by the FDI Policy of India, FIPB, SEBI, RBI, FEMA, and other relevant Indian legislations and regulatory bodies, especially under the government route.
- Again, under the governmental route, proposals for FDI in any type of retail trading will first be sent to the Department of Industrial Policy and Promotion (DIPP) for examination and scrutiny, before sending the same to the Foreign Investment Promotion Board (FIPB) for consideration and approval.
- For making foreign direct investment in multi brand retail in india, at least 30% of the procurement of goods/products purchased (manufactured/processed goods and products), must compulsorily be sourced from the local people and industries, such as the MSMEs, cottage and village industries, agricultural co-operatives, artisans and craftsmen, and so on, eventually on the annual basis. This mandatory condition is also applicable to FDI in the single brand retail in India beyond 51%.
- Setting up and establishment of the retail sales outlets are to be made strictly as per the applicable State/Union Territory laws and regulations, such as the Shops and Establishments Act, etc.
- Companies and agencies associated with FDI and involved in the activity of single-brand/multi-brand retail trading, will not be allowed for retail trading using e-commerce.
- Joint Ventures
- Sourcing of Supplies from small-scale sector
- Cash and Carry Operations
- Non-Store Formats
Foreign Direct Investment in Single Brand Retail
For foreign direct investment in single brand retail in india, the allowed percentage of equity/FDI Cap is now 100%. Up to 49% of this FDI inflow is to be made through the automatic route, and beyond this limit through the government approval route. This decision of the government of India is surely offers an immensely welcome opportunity to the globally prominent single-brand retailers like Apple, Nike, IKEA, etc. In the case of fdi in single retail in india up to 49%, the complete list of proposed products/product categories, except the food products, is necessarily be forwarded to the RBI. And, in the case of FDI exceeding 49%, processing of applications including such listings shall be made with the DIPP, and then with FIPB.
Foreign Direct Investment in Multi Brand Retail
And, for fdi in multi brand retail in india, the permissible FDI Cap is 51%, through the government approval route. This clearly means that, now the world-famous and leading multi-brand retailers like Wal-Mart of USA, Metro of Germany, Carrefour of France, Tesco of UK, etc., can smoothly make their majority stake investments in the multi-brand retail industry of India, for reaping bumper harvest.In addition to the above-mentioned mandatory conditions for making FDI in the multi-brand retailing in India, the following critical conditions are also to be compulsorily satisfied by the foreign investors:
- The minimal permissible size of FDI in the multi-brand retail in India has been kept at US $100 million.
- Retail Sales Outlets and Supermarkets are permitted to be set up only in those cities of India which contain at least one million population as per the Census 2011.
- Not less than the 50% of the total FDI in multi-brand retail trading in India, shall be utilized in the Back-End Infrastructure (which includes installing facilities for manufacturing, processing, quality control, packaging, storage, distribution, etc.), within three years. Expenditures on land cost, rentals, etc., will not be treated as investment in the back-end infrastructure.
So far, the States/Union Territories of India which have allowed FDI in MBRT (up to 51%) are the following ---- Andhra Pradesh; Assam; Delhi; Haryana; Himachal Pradesh (HP); Jammu & Kashmir; Karnataka; Maharashtra; Manipur; Rajasthan; Uttarakhand; and the Union Territories of Daman & Diu and Dadra and Nagar Haveli.