FDI limit raised to 100% for single-brand retailers

By a press note issued by the Department of Industrial Policy and Promotion on 10 January, the Indian government has raised the foreign direct investment (FDI) limit in single-brand retail trading companies to 100% from 51%. However, investment in this sector remains under the “approval route” and the prior approval of the Foreign Investment Promotion Board (FIPB) will be required for each such investment.

Restrictions on investment

The press note imposes various conditions on FDI in single-brand retail trading, some of them a legacy from 2006, when FDI in single-brand retail trading was first permitted. The conditions specify that products should be (i) of a single brand only; (ii) sold under the same brand in one or more countries other than India; and (iii) branded during manufacturing. A company selling multiple products (e.g. fashion goods, wines and spirits and jewellery) under one brand, and not under distinct brands for each product line, would be considered a single-brand retailer.

In its consolidated FDI policy that became effective on 1 October 2011, the government introduced an additional condition requiring the foreign investor to be the “owner” of the brand. The press note has introduced one further condition, namely, in case of investments above 51%, at least 30% of the value of the products sold are to be sourced from Indian small industries, village and cottage industries, artisans and craftsmen.

Rachael Israel (risrael@snrlaw.in) is an associate at S&R Associates, a law firm based in New Delhi and Mumbai.