On January 10, 2012, the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India, issued a press note amending the Consolidated Foreign Direct Investment ("FDI") Policy of October 2011 ("Amendment").
The Amendment allows up to 100% FDI in single-brand product retail trading with the prior approval of the Government of India, increased from a previous 51%, subject to the following conditions:
- Single-brand only: Products to be sold should be of a 'Single-Brand' only;
- International brand: Products should be sold under the same brand in one or more countries other than India;
- Branded during manufacturing: Single-brand product retail trading only covers products which are branded during manufacturing;
- Foreign owner: The brand should be owned by the foreign investor; and
- Mandatory sourcing from small industries: All proposals involving foreign investment of more than 51% in single-brand product retail trading requires mandatory sourcing of at least 30% of the value of products sold in India from Indian small industries and village and cottage industries, artisans and craftsmen. 'Small industries' are defined as industries with a total investment in plant and machinery not exceeding US$1 million (i.e., 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. The company and its statutory auditors are required to certify compliance with this condition.
While the motivation of the Amendment is well placed, it is imperative for the Government of India to lend some clarity on the exact scope of the Amendment especially in terms of the mandatory "small industries" sourcing of at least 30% of the value of products sold in India.