26 Gen Shift on the regulation of foreign direct investment on a single brand retail in India
by Maurizio Gardenal e Christian Montana
Articolo pubblicato su “Diritto 24″, rubrica del Sole24Ore.com, 26 gennaio 2012
An important change came into force in India on January 10, 2012 affecting the investment of foreign companies in the retail commercial business.
Foreign direct investment ( FDI ) in retail in India is banned except for the single brand product retail trading in which the FDI is admitted under certain conditions up to 51% stake in the Indian company.
Indeed, with regard to the single brand industry this framework has recently changed according to the latest rules issued by the Department of Industrial Policy and Promotion of the government of India.
According to the Press Note n. 1 of 2012 Series the FDI has permitted up to 100% subject to some conditions and through the government approval process.
Needless to say, this overhaul has been welcomed by foreign investors already established in India through a joint venture along with potential investors.
The primary conditions for FDI provided by the new regulation are summarized as follows:
1) Products to be sold should be of a “single brand”;
2) Products should be sold under the same brand internationally, in one or more countries;
3) Single Brand products would cover only those products which are branded during manufacturing;
4) The foreign investor should be the owner of the brand;
5) For any FDI the sourcing of at least 30% of the value of products sold would have to be done through local small industries.
The press note provides for more details regarding the “nature” of the “small industries” which need to fit the criteria to be considered eligible for the purpose.
The compliance of this former requirement would be assured through self-certification by the companies involved in the business.
The very reason why such a local sourcing requirement is mandatory is to allow Indian businesses to have easy access to global design and technology as well as expand employment opportunities in the country.
It is worth noting that this will most likely boost the growth and development of the small businesses which are widespread all across India.
Under these new circumstances it is evident that those foreign investors that are willing to take a more active part in the Indian business world will now have better opportunities to expand their scope by setting up local subsidiaries with a 100% ownership, as opposed to through a joint-venture with an Indian company as was the case before.
Likewise, the ones already present in India in what is called “single brand retailing” can bolster their stake over 51% in the Indian joint-venture.
This shift may be regarded as a clear hint to a possible further step by the Indian government in order to loosen the ban on the multi brand retailing on local businesses.
As a result, the increasing need for foreign investments may account for the possible decision by the Indian central government to make it easy for FDI to enter into the local markets and develop their business nationwide.
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