100% FDI IN SINGLE BRAND RETAIL TRADE IN INDIA UNDER AUTOMATIC ROUTE
The Union Cabinet chaired by H’ble Prime Minister Sh. Narendra Modi Ji has approved 100% FDI for Single Brand Retail Trading (SBRT) in India in its meeting on 10th January, 2018.
I) The key decisions of the Cabinet Meeting are noted below for ready reference:-
A) 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.
B) It has been decided to permit single brand retail trading entity to set off its 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 5 year period, the SBRT entity shall be required to meet the 30% sourcing norms directly towards its India’s operation, on an annual basis.
C) 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 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 – Rs. 100 Crores
2nd Year – Rs. 120 Crores
3rd Year – Rs. 150 Crores
4th Year – Rs. 200 Crores
5th Year – Rs. 300 Crores
II) Requirement for Local Sourcing as per 30% clause is as below:-
1st Year – Rs. 30 Crores
2nd Year – Rs. 40 Crores
3rd Year – Rs. 45 Crores
4th Year – Rs. 60 Crores
5th Year – Rs. 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 para II above are as below:-
1st Year – Rs. 30 Crores
2nd Year – Rs. 70 Crores (30 + 40)
3rd Year – Rs. 105 Crores (70 + 45)
4th Year – Rs. 165 Crores (105 + 60)
5th Year – Rs. 255 Crores (165 + 90)