Foreign Direct Investment in single brand, multi-brand retail and e-commerce

In this article, Yaser Siddiqui, Business Development Manager, Australian Trade & Investment Commission, New Delhi discusses FDI in single brand, multi-brand retail and e-commerce in India. 

SUMMARY

-     100% FDI is permissible in the sector through automatic route which means that no government approval in required.

-     Products should be sold under the same brand internationally i.e. products should be sold in one or more countries other than India.

-     There are two models for an Australian company to enter the country via Single Brand Retail

·        Model 1- Less than 51% Equity and Enter with a local Joint Venture partner

·        Model 2- More than 51% Equity and Enter with a local Joint Venture Partner OR Own 100% Equity

-     In respect of FDI beyond 51%, sourcing of 30% of the value of goods purchased, to be done from India.

-     Single brand retail trading, entity operating through brick and mortar stores is permitted to undertake retail trading through e-commerce. However it is mandatory to have a physical presence first before entering the e-commerce business.

-     There is no requirement for minimum or initial investment requirements under the FDI guidelines for single brand retail entity.

HOW AN AUSTRALIAN CAN ENTER SINGLE BRAND RETAIL?

MODEL 1- LESS THAN 51 % EQUITY-ENTER WITH A JV PARTNER

 Model Explanation:

 In this model the Australian retailer enters India in JV model with a local entity to create a new entity to undertake retailing in India

-     The Australian retailer owns less than 51% equity in the new entity

 Other Conditions to meet apart from conditions given above:

-   The non-resident entity or entities, whether owner of the brand or otherwise, shall be 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.

-     Examples of Popular brands that follow this model are: Zara, Mothercare etc

MODEL 2- MORE THAN 51 % EQUITY-ENTER WITH A JV PARTNER OR OWN 100% EQUITY

Model Explanation:

-     This is a model wherein the international retailer enters India through a Jv with a local entity to create a new entity to undertake retailing in India and owns more than 51% equity of the new entity

OR

-     The international retailer enters India on their own with ownership of 100% equity in the entity created to undertake retailing in India

Other Conditions to meet apart from conditions given above:

-     The non‐resident entity or entities, whether owner of the brand or otherwise, shall be 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.

 In respect of proposals involving foreign investment beyond 51%, sourcing of 30% of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors.

-     The quantum of domestic sourcing will be self--‐certified by the company, to be subsequently checked, by statutory auditors, from the duly certified accounts which the company will be required to maintain.

-     This procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning 1st April of the year of the commencement of the business i.e. opening of the first store. Thereafter, it would have to be met on an annual basis or year 6 on wards.

-     For the purpose of ascertaining the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of foreign investment for the purpose of carrying out single--‐brand product retail trading.

·    Sub Condition- Single brand retail trading entity would be permitted to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning 1st 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 from India over the preceding financial year, by the non- resident entities undertaking single brand retail trading, either directly or through their group companies.

? Examples of Popular brands that follow this model are: H&M, Ikea, Adidas, Innisfree

Some of the successful Australian brands which have entered India via single brand retail are Forever New, Cookie Man Australia etc. As a foreign retailer, an Australian brand can either sell through standalone stores, shopping malls or even thru a B2B model.

If you are an Australian company and looking to enter India, please get in touch with any of us in India.

If you would like to know more about opportunities in luxury retail in India, check my latest market insight here- https://www.austrade.gov.au/australian/export/export-markets/countries-and-economies/india/industries/luxury-retail-to-india

For a complete copy of FDI policy, please refer to the link here- https://dipp.gov.in/policies-rules-and-acts/policies/foreign-direct-investment-policy

Disclaimer: The document is for informational purposes only and should not be relied on as legal advice. Nothing contained in the document should be construed to constitute a recommendation, endorsement or views of the Government. Since the policy evolves and is amended regularly, the user is advised to ascertain the position as per the Policy and other extant law and regulations at the relevant time.

Source- Invest India