Ease of FDI Policy for Single Brand Retail and Digital Media Entities
In order to attract investment and to improve manufacturing in India the Union Cabinet (“Cabinet”) has approved changes in the Foreign Direct Investment (“FDI”) Policy. The key highlight of the changes is easing of the local sourcing norms for Single Brand Retail Trading (“SBRT”) entities. The changes are meant to liberalize and simplify the FDI policy to provide ease of doing business in the country. To ensure larger FDI inflows contributing to growth of investment, income and employment. Following are the key changes made –
- Single Brand Retail Trading (SBRT)
The table below captures the changes:
|Non-resident SBRT entities have to operate through brick and mortar stores before starting retail trading of that brand through e-commerce.
|Non-resident SBRT entities can carry out retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail.
|If SBRT entity has more than 51% foreign shareholding – 30% of value of goods sold in India has to be procured from India (“local sourcing requirement”).
|All procurements made from India by the non-resident SBRT entity for their single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.
|Non-resident SBRT entities could procure goods in India either directly or through their group companies.
|The scope of this clause has been increased, SBRT entities can now procure goods indirectly through unrelated third parties also, under a legally tenable agreement. This will also be included in the local sourcing requirement.
|The previous policy provided that only that part of the procurement for global operations shall be counted towards local sourcing requirement which is over and above the previous year’s value (Incremental Value).
|Now, the entire sourcing from India for global operations shall be considered towards local sourcing requirement and not just the incremental value.
- Changes with respect to Digital Media
The Cabinet has decided to permit 26% FDI under government route for uploading/ streaming of News & Current Affairs through Digital Media, on the lines of print media. This means that a digital media entity is allowed to attract foreign investment up to 26% of its shareholding after taking approval from the central government.
- Contract Manufacturing
The existing FDI policy provides for 100% FDI under automatic route in manufacturing sector. However, there was no specific provision for Contract Manufacturing. In order to provide clarity on contract manufacturing, Cabinet has decided to allow 100% FDI under automatic route in contract manufacturing.
The changes have addressed various pending issues with respect to the FDI Policy. It is being seen as a welcome move by the industry as well as by economists.
For example, now that the requirement of operating brick and mortar stores for non-resident SBRT entities has been done away with, more investment can be expected. Non-resident SBRT entities can now operate through e-commerce platforms/websites for a period of two years before being required to open brick and mortar stores. This will help them to analyse demand for their products and to determine whether it would be in their interests to operate in India and thereafter they can open their stores in India.
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Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.