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India Tax & Regulatory

Regulatory Alert Tracking Change

Volume: RA/04/2012 11 January 2012

In this issue:

Conditions for SBRT with any level of FDI Conditions for SBRT with FDI exceeding 51% Conclusion Contacts

FDI in Single Brand Retail Trading enhanced from 51% to 100%

Government of India (GOI) presently permits Foreign Direct Investment (FDI) in Single Brand Product Trading (SBRT) upto 51% under Government Approval route subject to compliance of specified conditions. GOI has, on 10 January 2012, permitted FDI upto 100% under Government Approval route subject to compliance with conditions. Accordingly, the salient features of FDI in SBRT are as under:

Conditions for SBRT with any level of FDI

(i) Products to be sold in India should be: of a 'Single Brand' only; sold under the same brand in one or more countries other than India; branded during manufacturing process.

(ii) Foreign investor should be the owner of the brand.

Conditions for SBRT with FDI exceeding 51%

For FDI beyond 51%, sourcing of at least 30% of the value of products sold will have to be mandatorily done from Indian 'Small Industries/ Village and Cottage Industries, Artisans and Craftsmen'. 'Small Industries' means industries having total investment in plant and machinery upto USD 1 million. This investment in plant & machinery refers to the value at the time of installation, without providing for depreciation. If at any point in time, this valuation is exceeded, the industry will not qualify as a 'small industry' for this purpose.

Village Industry shall be as defined in the Khadi and Village Industries Commission Act, 1956. Accordingly, 'Village Industry' shall mean:

any industry located in a rural area which produces any goods or renders any service with or without usage of power and in which the fixed capital investment per head of an artisan or a worker does not exceed ` 100,000 (` 150,000 for industries in hilly areas) or such other sum as may be notified by the Central Government from time to time;

any other non-manufacturing unit established for the sole purpose of promoting, maintaining, assisting, servicing (including mother units) or managing any village industry.

The compliance of aforesaid condition of 30% sourcing shall be ensured through self-certification by the Indian Company and subsequently verified by its statutory auditors from the duly certified accounts.

Mandatory 30% sourcing requirement from indigenous sources is expected to give fillip to the domestic manufacturing in India, create jobs and increase trade and commerce.

Source: Press Note No. 1 (2012 series) dated 10 January 2012 issued by Department of Industrial Policy & Promotion.

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