Foreign investment in Indian retail

The Indian retail market is ranked as one of the most attractive retail destinations globally. Press Note 3 of 2006 permits up to 51% foreign investment in an Indian company in the retail sector with prior approval from the Foreign Investment Promotion Board (FIPB), provided: (i) the products to be sold are of a single brand; (ii) the products are sold under the same brand internationally; and (iii) the products are branded while they are being manufactured. Additionally, any retail company with foreign investment must seek the FIPB’s approval for every new product or product category that it intends to sell under the single brand for which the company had earlier sought and received approval.

Item 31 of annex I to part I of the Master Circular on Foreign Investment in India issued by the Reserve Bank of India on 1 July 2009 states that up to 100% FDI is permitted: (i) under the automatic route (i.e. no prior approval is required) in Indian entities involved in “wholesale cash-and-carry trading” and “trading for exports”; and (ii) with FIPB approval in companies engaged in (a) trading items that are sourced from the small scale sector and (b) test marketing items that the company has approval to manufacture, provided the manufacturing commences along with test marketing.

Notable in the government’s policy on retail is the distinction between (i) retail and wholesale trade and (ii) single-brand retail and multi-brand retail.

Poornima Sampath is a senior associate at S&R Associates, a New Delhi-based law firm.