FOREIGN DIRECT INVESTMENT

INDIAN RETAIL MARKET

Indian Retail Market accounts 22 % of the country's Gross Domestic Product (GDP) and shares 8% of the total employment. Indian Retail Market is amongst top 5 Retail market in the World estimated about $ 450 billion a year and is estimate to reach $800 billion by 2015 considering its continuing growth rate every year between 15-20%. Of such a huge retail market, the organized sector held hardly 8 billion share in the retail market, and rest was operated by traditional family run businesses.

BACKGROUND OF FDI POLICIES

FDI in Retail Sector was under the list of Prohibited Activity. After adopting the policy of Liberalization and Globalization in the year 1991, government has strategically and step by step promoted and opened FDI in retail sector. In 1997 Government permitted FDI in Cash and Carry (Wholesale) business with 100% equity under the Government Approval Route. In 2006 Government liberalized the laws for 100% Cash and Carry (Wholesale) business and placed Cash and Carry (Wholesale) business upto 100% FDI under automatic routine in place of Government Approval Route. A step further, Government further opened up Indian Retail Market for Single-Brand Retail Outlet upto 51% FDI under Government Route, which came to be increased upto 100% FDI in 2011. As a strategic step further towards opening Indian Consumer Market to Foreign Investment, in 2013 Government introduced Policy of Multi Brand Retail Trading with permitted FDI upto 51% under the Government Approval Route.

Whereas, the decision of the Government to open FDI in multi brand trading opened up the gate way for multi-national companies to an estimated $ 800 billion retail market, the same became a subject matter of severe protested by domestic retail industry, who feared their survival against large multi-national giants. This article focus on FDI policy of Government in Multi Brand Trading which is aimed at promoting FDI growth rate vis-à-vis protection of domestic retain business.

FDI IN MULTI BRAND UNDER GOVERNMENT ROUTE

With Effect from April 5, 2013, FDI upto 51% in Multi Brand Retail Trading Business is permissible under the Government Approval Route.

Government Route requires prior Government approval before FDI is made in the notified business. Such proposals under Government Route are considered by Foreign Investment Promotion Board (FIPB). Applications to FIPB for approval of foreign investment are submitted in Form FC-IL without any payment of fees.

Any multinational proposing to invest in Multi Brand Retail Trading Business in India, shall make an application with the FIPB, with all details and required documents. Before an application is processed by FIPB, the Department of Industrial Policy & Promotions would scrutinize the application to determine whether the proposed investment satisfies the notified government guidelines in relation to Multi Brand Retain Business. Upon approval by DoPP, FIPB shall consider the application in accordance with the guidelines FIPB issued by the government from time to time.



SECTORIAL CAP

Investment in Multi Brand Retail Business is restricted upto 51% FDI. So the foreign investor individually or collectively cannot hold more than 51% Capital in Multi Brand Retail Business. Rest 49% shall be domestic holding.

Capital means equity shares; fully, compulsorily & mandatory convertible preference shares; fully, compulsorily & mandatory convertible debentures.



Minimum Capital Requirement

A foreign investor proposing to invest or start a business of Multi Brand Retail Business shall brining in minimum capital US $ 100 million. as FDI. The intention of the government to place this restriction is to ensure only.

At least 50% of total FDI brought in shall be invested in 'backend infrastructure' within three years of the first tranche of FDI, where "back-end infrastructure‟ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, ware-house, agriculture market produce infrastructure etc. Expenditure on land cost and rentals, if any, will not be counted for purposes of backend infrastructure.



DOMESTIC PROCUREMENT

At least 30% of the value of procurement of manufactured/ processed products purchased shall be sourced from Indian 'small industries' which have a total investment in plant & 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. This procurement requirement would have to be met, in the first instance, as an average of five years‟ total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.



TERRITORIAL OPERATIONS

Retail sales outlets may be set up only in cities with a population of more than 10 lakh as per 2011 Census and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities; retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking; In States/ Union Territories not having cities with population of more than 10 lakh as per 2011 Census, retail sales outlets may be set up in the cities of their choice, preferably the largest city and may also cover an area of 10 kms around the municipal/urban agglomeration limits of such cities. The locations of such outlets will be restricted to conforming areas, as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.



APPLICABILITY OF LOCAL STATE LAWS

This policy is only an enabling policy and State Governments/Union Territories are free to take their own decisions in regard to implementation of the policy. A State Government or Union Territory may or may not permit within their territory to operate FDI operated multi brand retail outlets. Therefore, retail sales outlets can be set up in those States/Union Territories which have agreed, or agree in future, to allow FDI in Multi Brand Retail Business under this policy. The list of States/Union Territories which have agreed to permit FDI in Multi Brand Retail Business are stated below. This list may be updated as and when any State or Union Territory in future communicate its agreement to this FDI policy in Multi Brand Retail Business. The retail sales outlets have to be established in compliance with applicable State/Union Territory laws/ regulations. Below is the list of most common regulations which may apply establishment and operations of Retail Sales Outlets.



REGULATORY APPROVALS

Below is the list of Regulatory Approvals that may be required to establish and operate a Multi Brand Retail Outlet. Please note, not all the regulatory approvals listed below are required. Requirement of Regulatory Approvals depend on the nature of Retail Outlet, Size of Out let, Number of Employees, Location of Outlet, Type of products and etc. You may also note that the below list is not an exhaustive list. Requirement of Regulatory approvals, Prescribed Procedure, Time Consumed, Forms, applicable Fees etc. vary from State to State.



CONSENTING STATES

Below is the list of States / Union Territories who have agreed to permit FDI in Multi Brand Retail Business in their Territory
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