Implications of the new FDI policy in India
Foreign Direct Investment are the investments made across international borders whereby an entity of one country invests its money into another country in the form of business establishments or incorporations.
With the application of the tool of Foreign Direct Investment (hereinafter referred to as the ‘FDI’), the Government of India aims to promote such investment to supplement domestic capital, technology and skills in furtherance development of the country. The Government of India through the Department of Industrial Policy and Promotion (hereinafter referred to as the ‘DIPP’), Ministry of Commerce & Industry, issues policies regulating FDI.
The FDI scheme allows investment in India via following routes:
- Automatic Routewhich does not require any prior approval from the Reserve Bank of India (hereinafter referred to as the ‘RBI’) or Government of India.
- Approval Route which mandates the approval from the Government of India prior to investment.
The FDI is strictly prohibited for the following areas:
- Gambling, betting, lottery business, chit funds, Real Estate business, manufacturing of tobacco or its substitutes, etc.;
- Activities/sectors not open to private sector investment;
- Foreign technology collaboration in any form including licensing for franchise, trademark, brand name, management contract is also prohibited for Lottery Business and Gambling and Betting activities.
Single Brand Retail Trading
In the terms of the FDI Policy, the Single Brand Retail trading is the medium through which a retail store involving foreign investment may sell only a single brand.
Mandatory Pre-requisites for FDI in Single Brand product retail trading
- Products to be sold should be of a ‘Single Brand’ only.
- Products should be sold under the same brand internationally i.e. products should be sold under the same brand in one or more countries other than India.
- ‘Single Brand’ product-retail trading would cover only products which are branded during manufacturing.
The Foreign Investment in Single Brand product retail trading is advantageous in the following ways:
- It helps in attracting investments in production and marketing,
- It encourages increased sourcing of goods from India,
- It enhances competitiveness of Indian enterprises through access to global designs, technologies and management practices,
- It boosts employment on the local front,
- It improves the availability of such goods for the consumer bringing to them wide product choices
Advent of new Policy
The FDI policy on Single Brand Retail Trading (hereinafter referred to as the ‘SBRT’) till now permitted 49% FDI under automatic route, and FDI beyond that up to 100% through Government approval route.
The Government of India has relaxed its norms pertaining to FDI in single brand retail trading with a view to facilitate the ‘ease of doing business’ in India.
100% FDI is now being allowed in single-brand retail thereby allowing investment without prior approval in this sector.
In addition to the same, local sourcing norms have also been liberalized. The privilege of setting off incremental sourcing of goods from India for global operations during initial 5 years against the mandatory sourcing requirement of 30% of purchases from India. After the exhaustion of the said period the said norms would be required to be complied with, on an annual basis.
Implication of New Policy
The new policy will prove to be beneficial in the manner stated below:
1. It will facilitate the entry of many Multi-national Companies in India for retail trade in India
2. It will provide faster and easier compliance to the FDI policy.
3. It would encourages economic growth.
The New FDI Policy comes as an investor favoring approach developing a friendly business environment in India broadening the scope of business in India. This aids the objective of‘Make in India’. The policy also creates a healthy competition in the market by allowing easy access to the foreign brands in India.