FDI in Retail, 2012

CB The Centre In January 2012 notified 100 per cent foreign direct investment (FDI) in single brand retail, opening the decks for setting up shop by global retail chains such as Adidas, Louis Vuitton, Armani and Gucci to have full ownership of their India operations. However, the notification comes with some riders to protect the interests of domestic small and medium scale units. FDI up to 100 per cent under the government approval route would be permitted in single brand product retail trading, according to an official note issued by the Department of Industrial Policy and Promotion (DIPP). The notification states that in respect of proposals involving FDI beyond 51 per cent, the mandatory sourcing of at least 30 per cent would have to be done from the domestic small and cottage industries, which have a maximum investment in plant and machinery of $1 million (about Rs.5 crore). Commerce and Industry Minister Anand Sharma said the Cabinet took a conscious decision on November 24 to liberalise the policy for FDI in single brand retail. FDI in single brand retail has led to emergence of some global majors in the Indian market. We have now allowed FDI up to 100 per cent with the stipulation that in respect of proposals involving FDI beyond 51 per cent there will be mandatory sourcing of at least 30 per cent of the total value of the products sold would have to be done from Indian small industries/village and cottage industries, artisans and craftsmen. This step will provide stimulus to domestic manufacturing value addition and help in technical upgradation of our local small industry, Mr. Sharma remarked. At present, for singlebrand retailers, 51 per cent FDI is permitted. The removal of investment cap would help global fashion brands, especially from Italy, the U.S. and Europe, strengthen their interest in the growing Indian market. Many big names have already set up their operations in the country by partnering with Indian partners. The new policy would allow them to buy out the domestic partners. The government said the move, which comes into effect immediately, would enhance competitiveness of Indian enterprises through access to global design, technologies and management practices. The riders proposed in the notification state that products by the global chains should be of single brand only and be sold under the same brand internationally. Single brand retailing would cover products that are branded during manufacturing and the foreign investor should be the owner of the brand. Though 51 per cent FDI in single brand was allowed in February, 2006, not much investment has come in the sector. In the last three and half years, FDI worth only Rs.196 crore was received in the sector. FDI in retail to benefit farmers

Chief Minister N. Kiran Kumar Reddy on 5.09.2012 said foreign direct investment (FDI) in the retail sector would help farmers secure a premium price notwithstanding the controversy surrounding the Central policy matter. Addressing a meeting after inaugurating a godown at the Agriculture Market Yard at Andhra Pradesh, Mr. Kiran Kumar Reddy said an investment of Rs. 500 crore was expected into the infrastructure and storage facility by the private sector. He said in the government sector a storage space of 10 lakh tonnes was being created in 2012 and 15 lakh tonnes in 2013. Storage mismatch He said while the total paddy production in the State was 210 lakh tonnes, only 44 lakh metric tonnes of storage facility were available. The mismatch was causing a choking effect and created conditions for distress sale by farmers. Out of the 40 lakh tonnes rice exported at the national level, the APs contribution last season was 25 lakh tonnes. As a result, the price of rice was looking up in the open market in the State. Mr. Reddy launched the revised Raithu Bandhu scheme wherein farmers would get credit for the stock at three per cent rate of interest. If the farmers repaid the loan within 180 days, all the incentives would apply. He called upon market yards and Primary Agriculture Cooperative Societies to emulate the spirit of Mulapanur Cooperative Society in Karimnagar district which clocked a turnover of Rs. 150 crore by helping farmers hold stocks till the markets looked up. He said the government was giving a subsidy of 50 per cent for farm mechanisation activities. He expressed displeasure over the RBI norms for loan schedules in case of natural calamities saying it caused burden to farmers rather than mitigating the pain. FDI Policy 2012 The Department of Industrial Policy and Promotion (DIPP) has, on April 10, 2012 come out with new Foreign Direct Investment (FDI) Policy effective from April 10, 2012. The consolidated circular on FDI policy was introduced for the first time in 2010 summarising all the regulations including those of FEMA and of the Reserve Bank of India (RBI) for the benefit of foreign investors. Thereafter, a revised version was released every six months. However, the Government has now decided that the consolidated circular on FDI Policy will be issued after one year instead of every six months. The consolidated document is a guide to foreign investors as it contains the entire regulatory framework and includes all FDI policies announced prior to the release of the circular. It also has regulations on FDI, contained in FEMA and RBI circulars.

Definition of Joint Venture remains unchanged There was a speculation that the government was most likely going to define the term joint venture for the purpose of FDI under which it would be mandatory for at least two partners to have minimum 25% stake each in the JV company. The definition of joint venture was to be incorporated in the consolidated FDI policy, as reported by ET. However, no such change has been introduced in the consolidated FDI policy. Key Changes According to the PIB, DIPP has introduced the following key changes under the new consolidated FDI Policy: Policy for FDI in Commodity Exchanges Foreign institutional investors (FIIs) can now invest up to 23 percent in commodity exchanges without seeking prior approval of the government. However, FDI will continue to need the approval of the FIPB. At present, foreign investment, within a composite (FDI and FII) cap of 49 percent, under the government approval route is permitted in commodity exchanges. Within this overall limit of 49 per cent, investment by registered FIIs is limited to 23 percent and investment under the FDI scheme is limited to 26 percent. This change aligns the policy for foreign investment in commodity exchanges, with that of other infrastructure companies in the securities markets, such as stock exchanges, depositories and clearing corporations. Non Banking Finance Companies (NBFC)-clarification on leasing It has been clarified that the activity of leasing and finance, which is one among the eighteen NBFC activities, where induction of FDI is permitted, covers only financial leases and not operating leases. This provision intends to clarify the coverage of the term leasing and finance, insofar as the NBFC sector is concerned. Clarification on investment by FIIs: Currently, an FII may invest in the capital of an Indian Company under the Portfolio Investment Scheme which limits the individual holding of an FII to 10 percent of the capital of the company and the aggregate limit for FII investment to 24 percent of the capital of the company. This aggregate limit of 24 percent can be increased to the sectoral cap/statutory ceiling, as applicable, by the Indian Company concerned, through a resolution by its Board of Directors, followed by a special resolution to that effect by its General Body. It has been clarified that this would be subject to prior intimation to RBI. Investment by Foreign Venture Capital Investors (FVCIs)

FVCIs are allowed to invest in the eligible securities (equity, equity linked instruments, debt, debt instruments, debentures of an IVCU or VCF, units of schemes / funds set up by a VCF) by way of private arrangement / purchase from a third party also, subject to stipulated terms and conditions. SEBI registered FVCIs have also been permitted to invest in securities on a recognized stock exchange subject to the provisions of the SEBI (FVCI) Regulations, 2000. Investment by Qualified Financial Investors (QFIs) Government has permitted QFIs to invest (DPs), in equity shares of listed Indian companies as well as in equity shares of Indian companies which are offered to the Indian public in terms of the relevant and applicable SEBI guidelines/regulations. QFls have also been permitted to acquire equity shares by way of right shares, bonus shares or equity shares, on account of stock split/consolidation or equity shares on account of amalgamation, demerger or such corporate actions, subject to the prescribed investment limits. The individual and aggregate investment limit for QFIs will be 5 percent and 10 percent, respectively, of the paid up capital of company. General permission for transfer of shares and convertible debentures: The liberalised policy on transfer of shares/ convertible debentures of companies engaged in the financial services sector has now been reflected under FDI policy. Changes in FDI policy in Single Brand retail trading The policy regarding Single Brand retail trading has been liberalized and now FDI up to 100 percent is permitted under the Government route, subject to specified conditions, as per Press Note 1(2012) issued on January 10, 2012. The next version of the consolidated circular on FDI Policy, will be released on March 29, 2013. Dream Dare Win www.jeywin.com *****