Brand gives identification to any company or any product. A Brand may represent the name of the business that manufactures multiple products under the same brand name or a brand may represent a product that a company manufactures out of multiple other brands. The brand provides identification to the product or the company worldwide.
The concept of Single brand retail trading and multi-brand retail trading is old and this option is explored by Foreign investors to invest their funds in India. Accordingly, the Department for Promotion of Industry and Internal Trade has defined FDI Policy in multi and single-brand retail trading.
Single-brand retail trading and multi-brand retail trading is a part of the Trading Segment in FDI policies. The government has classified the following sectors under the trading segment:
- Cash & Carry Wholesale Trading/Wholesale trading
- E-commerce activities
- Single Brand Product Retail Trading
- Multi Brand Retail Trading
- Duty Free Shops
In this article, you will find a detailed insight into FDI policies for Multi and single-brand retail trading.
1. Single Brand Retail Trading (SBRT)
1.1 Meaning of Single Brand Retail Trading
- The FDI policy on Single Brand Retail Trade(SBRT) has been in force since 2006. Since then, more than 100 brands have obtained approval from the Government for SBRT activities.
- As the name suggests, Single Brand Retail Trading means selling any category of a product under the same brand whether domestically or internationally. This segment sells goods generally to customers, not to other businesses.
- For example Starbucks, Starbucks sells beverages and food items under the brand Starbucks. It also sells cups under the same brand name. Therefore other examples could be Sony, Nokia, LG, Adidas, Nike, etc.
1.2 FDI Permitted in SBRT
As per the latest Policy issued by Department of Industrial Policy and Promotion (DIPP) vide ‘Consolidated FDI Policy Circular of 2020’, details of FDI policies on SBRT is given below:
|% of Equity/ FDI Cap
|Single Brand Product Retail Trading
The government has clarified that the basic objective of allowing FDI in single-brand retail is to attract investment in production and marketing and thus improving the availability of such goods to the consumer, encouraging increased sourcing of goods from India, and enhancing the competitiveness of Indian enterprises through access to global designs, technologies, and management practices.
1.3 Conditions for FDI in Single-Brand Retail
Foreign Direct Investment under single-brand retail is subject to the following conditions:
- The products sold should be of a ‘single brand’ only.
- The Products should be sold under the same brand in one or more countries other than India i.e, internationally. Therefore, if a brand sales only in India then it shall not be entitled for FDI under this category
- SBRT covers only those products that are branded during manufacturing.
- A non-resident entity or entities, whether the owner of the brand or otherwise, shall be permitted to undertake ‘Single Brand’ product retail trading in the country for the specific brand. Non-resident entities or entities can be permitted by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking single-brand retail trading and the brand owner.
- In respect of proposals involving foreign investment beyond 51%, the following points are also required to be considered:
- 30% of the value of goods purchased, will be done from India. Procurement will be done preferably from MSMEs, village and cottage industries, artisans, and craftsmen, in all sectors.
- The amount of domestic sourcing will be self-certified by the company, which is subsequently verified by the statutory auditors from the duly-certified accounts of the company.
- This procurement requirement would have to be met, in the 1st instance, as an average of 5 years’ total value of the goods procured, beginning 1st April of the year of the commencement of SBRT business (either opening of the first store or start of online retail, whichever is earlier). Therefore, SBRT entities shall be required to meet the 30% local sourcing norms on an annual basis.
- To ascertain the sourcing requirement, the relevant entity would be the company, incorporated in India, which is the recipient of foreign investment for the purpose of carrying out single-brand product retail trading
- For the computing limit of 30%, all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.
- SBRT entity is also permitted to set off sourcing of goods from India for global operations against the mandatory sourcing requirement of 30%.
- The ‘sourcing of goods from India for global operations’ shall mean the value of goods sourced from India for global operations for that single brand (in INR ₹) in a particular F.Y. directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legal agreement.
- An SBRT entity that operates through brick-and-mortar stores can undertake retail trading through e-commerce. However, retail trading through e-commerce can also be done prior to opening the brick-and-mortar stores, subject to the condition that the entity will open a brick-and-mortar store within 2 years from the date of start of the online retail business.
1.4 FDI in state-of-art and ‘cutting-edge’ technology
- Indian brands must be owned and controlled by resident Indian citizens or companies owned and controlled by resident Indian citizens.
- The Sourcing norms will not be applicable up to 3 years from the commencement of the business i.e. opening of the first store or start of online retail, whichever is earlier for entities undertaking single brand retail trading of products having ‘state-of-art’ and ‘cutting-edge’ technology and where local sourcing is not possible.
- However, after three years from the commencement of business (either the starting of online retail or opening of the first store, whichever is earlier), the sourcing norms as stated in the conditions mentioned above will be applicable.
- A Committee under the Chairmanship of the Secretary, DPIIT, with representatives from NITI Aayog, the concerned Administrative Ministry, and independent technical expert(s) on the subject will examine the claim of applicants on the issue of the products being in the nature of ‘state-of-art’ and ‘cutting-edge’ technology where local sourcing is not possible and give recommendations for such relaxation.
2. Multi Brand Retail Trading
2.1 Meaning of Multi-Brand Retail Trading (MBRT)
- There is no definition given of Multi Brand Retail training under the FDI Policy. However, as the name suggests, in this segment, multiple brands are sold under the same company. E.g. Hindustan Unilever, it has multiple brands such as Dove, Boost, Brook bond, etc. Similarly, Meta is also an example of Multi-brand retail trading having Facebook, Instagram, Whatsapp, etc.
- MBRT serves the same purpose as is served by the local kirana stores in the unorganized sector in India.
- As per a Press release issued by the Government of India, India has received FDI in multi-brand retail from one foreign company of the United Kingdom. State/UT-wise data of FDI inflow is not centrally maintained.
2.2 FDI Permitted in MBRT
As per FDI policy, FDI in MBRT in permitted upto following limits:
|% of Equity/FDI Cap
|Multi Brand Retail Trading
2.3 Conditions of making FDI in MBRT
FDI in multi-brand retail trading, in all products, will be permitted, subject to the following conditions:
- Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery, and meat products, may be unbranded.
- A minimum amount of US $ 100 million i.e. approx 700 crores INR has to be invested in India.
- Mandatory Investment in Back-end Infrastructure:
- At least 50% of the total FDI brought in the first tranche of US $ 100 million, shall be invested in ‘back-end infrastructure’ within three years.
- ‘Back-end infrastructure’ will include capital expenditure on all activities, excluding that on front-end units; for instance, back-end infrastructure will include investment made towards processing, manufacturing, distribution, design improvement, quality control, packaging, logistics, storage, warehouse, agriculture market produce infrastructure, etc.
- Expenditure on land cost and rentals, if any, will not be counted for purposes of ‘backend infrastructure’. Subsequent investment in backend infrastructure would be made by the MBRT retailer as needed, depending upon its business requirements.
- Source of Domestic Procurement
- At least 30% of the total procurement of manufactured/processed products purchased shall be sourced from Indian MSME industries, which have a total investment in plant & machinery not exceeding US $ 2.00 million(INR 14 Crore approx).
- This valuation refers to the value at the time of installation, without providing for depreciation.
- The status of ‘small industry’ would be reckoned only at the time of the first engagement. Therefore, such an industry shall qualify as a ‘small industry’ even if it outgrows the investment of US $ 2.00 million during the course of its relationship.
- Sourcing from agricultural co-operatives and farmers’ co-operatives would also be considered in this category.
- A period of 5 years has been given for meeting this requirement for the first compliance. The procurement requirement would have to be met, as an average of five years’ total value of the manufactured/processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.
- Self-certification by the company could be cross-checked, as and when required. Accordingly, the investors shall maintain accounts, duly certified by statutory auditors.
- Location of retail sales outlets
- Retail sales locations may be set up only in cities with a population of more than 10 lacks as per the 2011 Census or any other cities as per the decision of the respective State Governments, and may also cover an area of 10 km around the municipal/urban agglomeration limits of such cities;
- Retail locations will be restricted to conforming areas as per the Master/Zonal Plans of the concerned cities and provision will be made for requisite facilities such as transport connectivity and parking.
- Other Conditions
- It has been clarified that the above-mentioned policy is an enabling policy only and the State Governments/Union Territories would be free to take their own decisions in regard to the implementation of the policy. Therefore, retail sales outlets may be set up in those States/Union Territories which have agreed, or agreed in the future, to allow FDI in MBRT under this policy.
- Retail sales outlets may be set up only in those States/Union Territories which have agreed or agreed in the future, to allow FDI in MBRT under FDI policy. The following states have given their consent to allow FDI in MBRT—
- Andhra Pradesh
- Himachal Pradesh
- Jammu & Kashmir
- Daman & Diu and Dadra and Nagar Haveli (Union Territories)