Single Brand Retail Trading means where the goods are sold under a single brand name domestically and internationally. It refers to a business or entity, or franchisee where goods are sold to individual customers and not to other businesses.
All the goods sold by a business or entity, or franchisee should be under the same brand. A person residing outside India can undertake single-brand retail trading for a specific brand in India.
The Department of Industrial Policy and Promotion (DIPP) issued the ‘Consolidated FDI Policy Circular of 2020’, which regulates the Foreign Direct Investment (FDI) for single-brand retail trading in India. This circular came into effect on 15 October 2020.
FDI in single-brand retail trading aims at attracting investments in marketing, production, encouraging increased sourcing of goods from India, improving the availability of goods for the consumers and enhancing the competitiveness of Indian enterprises through access to global technologies, designs and management practices.
Foreign Direct Investment in Retail Trading
Under the FDI provisions for the trading sector, FDI through the automatic route with a cap set at 100% is allowed for retail trading, except the multi-brand retail trading. The multi-brand retail trading has to seek government approval, and a cap of 51% is set.
FDI regulations segregate the retail trading sector into four broad categories, which are-
- Cash and carry wholesale trading (including source from Medium and Small Enterprises),
- Single brand retail trading,
- Multi-brand retail trading and
- E-commerce activities.
Foreign Direct Investment in Single Brand Retail Trading
The FDI cap on the single-brand retail trading is set at 100% through the automatic route. The automatic route means where the foreign investor or the Indian company does not require any prior permission or approval from the Reserve Bank of India or the Government of India.
As the entry route of single-brand retail trading is the automatic route, it attracts foreign investors seeking to expand their business by tapping into India’s large customer base. This makes India an attractive investment destination for foreign investors.
However, the FDI on the single-brand retail trading is subject to the following conditions-
- Products need to be of a single brand only. Single brand product retail trading covers only those products which are branded during manufacture.
- Products need to be sold under the same brand internationally, i.e. they have to be sold under the same brand in one or more countries outside India. However, this condition is not applicable for undertaking single-brand retail trading of Indian brands.
- A non-resident entity will be permitted to undertake single-brand product retail trading in India either directly by the owner or through a legal agreement executed between the brand owner and the Indian entity undertaking single-brand retail trading.
- In the case of proposals that involve foreign investment beyond 51%, sourcing of 30% of the value of the purchase of the goods should be done from India. The conditions to adhere in this case are-
- The sourcing of the goods should be preferably from Micro Small and Medium Enterprises, village and cottage industries, craftsman and artisans from all sectors.
- The amount of domestic sourcing will be self-centred by the company, which is subsequently checked by statutory auditors from the company’s duly certified accounts.
- The procurement requirement should be met as an average of five years the total value of the goods procured, beginning from the 1 April of the commencement year of single-brand retail trading business (either opening of the first store or starting online retail, whichever is earlier). Thereafter, the entity can meet the 30% local sourcing norms on an annual basis.
- To ascertain the sourcing requirement, the relevant entity will be the company incorporated in India, which receives the FDI for carrying out single-brand product retail trading.
- For meeting the local sourcing requirements as mentioned in the above point, all procurements for the single brand made from India by the single-brand retail trading entity will be counted irrespective of whether the procured goods are sold in India or exported.
- A single-brand retail trading entity has the permission to set off sourcing of goods from India for global operations against the mandatory sourcing requirements of 30%.
- The ‘sourcing of goods from India for global operations’ means the value of goods sourced from India for that single brand in terms of Indian Rupees for global operations in the particular financial year either directly by the entity undertaking single-brand retail trading entity or its group companies or indirectly through a third party under a legal agreement.
- A single-brand retail trading entity that operates through brick and mortar stores can undertake retail trading via e-commerce. However, retail trading through e-commerce can also be done before opening the brick and mortar store, subject to the condition that the entity will open a brick and mortar store within two years of starting the online retail business.
Points to be noted :
- Indian brands must be owned and controlled by resident Indian citizens or companies owned and controlled by resident Indian citizens.
- The sourcing norms of 30% of the value of the goods purchase are not applicable for three years for the entities undertaking single-brand retail trading of products having ‘cutting-edge’ and ‘state-of-art’ technology where local sourcing is not possible.
- However, after three years from the commencement of business (either the starting of online retail or opening of the first store, whichever is earlier), the sourcing norms as stated in the conditions mentioned above will be applicable.
- A committee under the Chairmanship of Secretary, Department for Promotion of Industry and Internal Trade (DPIIT) along with representatives of NITI Aayog, independent technical experts and concerned administrative Ministry will examine the claim of the applicants of the products being in the nature of ‘state-of-art’ and ‘cutting edge’ technology and provide recommendations for relaxation in sourcing norms.
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