Lakshmi Kumaran & Sridharan AttorneysAn ISO 9001 / 27001 certified law firm

FDI in multi-brand retailing clarified

The Department of Industrial Policy and Promotion (DIPP) has clarified the conditions to be satisfied to seek approval for foreign direct investment (FDI) in multi-brand retailing. Some of the important points clarified on 6th June, 2013 are: 
  • The 30% mandatory sourcing requirement from small and medium enterprises (SME) shall refer to sourcing of manufactured or processed products and, procurement of fresh produce shall not be counted;     
  • The 30% sourcing requirement shall be only with respect to the front end store of the multi brand retailer (MBR);     
  • The entire 50% investment in back-end infrastructure shall be only in greenfield assets. The entity shall not be allowed to acquire the supply chain or back end assets of an existing company;      
  • Investment in an existing back-end infrastructure company shall not be counted for the 50% investment requirement in back-end infrastructure;      
  • FDI in non-FDI approved as well as FDI-approved States in back-end infrastructure will be counted for the 50% investment requirement in back end infrastructure as long as the investment is an additionality;      
  • The business of wholesale cash and carry retailing and multi-brand retailing shall have to be undertaken by two separate entities even though they may have the same investors;·     
  • The MBRT entity cannot undertake B2B activities and e-commerce;      
  • The front-end stores set up by MBRT entity will have to be ‘company owned and company operated’ and franchising will not be allowed;      
  • Certificate issued by District Industries Centre will be sufficient to confirm status of supplier as ‘small industry’;     
  • For determining whether a city has a population of more than 10 lakh, census data alone shall be relied upon;      
  • If the foreign investor approaches a State Government not included in the list of states supporting FDI in multi-brand retailing, consent from the State Government and a suitable amendment to the policy by Central Government shall be sufficient for investment by MBRT entity. 
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