FEMA/FDI: Foreign Direct Investment (FDI) In Single-Brand Product Retail Trading - International Trade & Investment

Edited by Hitender Mehta

The Government of India has revised the conditions for FDI in single brand product retail trading. The amendments may be listed as under:

Only one non-resident entity, whether owner of the brand or otherwise, shall be permitted to undertake single brand product retail trading in the country, for the specific brand, through a legally tenable agreement, with the brand owner for undertaking single brand product retail trading in respect of the specific brand for which approval is being sought. [Earlier, the foreign investor could only be the owner of the brand.]
In respect of proposals involving FDI beyond 51%, sourcing of 30%, of the value of goods purchased, will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors, where it is feasible. The quantum of domestic sourcing will be self certified by the company, to be subsequently checked, by the statutory auditors. [Earlier, the 30% sourcing was to be done on value of goods sold and from Indian small industries/ village and cottage industries, artisans and craftsmen.]
Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of single brand retail trading.

(Source: DIPP Press Note No. 4 of 2012)

FDI in multi-brand retail trade

The Government of India has permitted FDI, upto 51%, under the Government approval route, in multi-brand retail trading subject to the specified conditions. The key conditions may be listed as under:

Minimum FDI of US$ 100 million should be brought in by the foreign investor;
At least 50% of the total FDI brought in shall be invested in 'backend infrastructure' within 3 years of the first tranche of FDI.
At least 30% of the value of procurement of manufactured/ proceesed products purchased shall be sourced from Indian small industries which have a total investment in plant and machinery not exceeding US$ 1 million.
Government will have the first right to procurement of agricultural products.
Retail trading, in any form, by means of e-commerce, would not be permissible, for companies with FDI, engaged in the activity of multi-brand retail trading.
This is an enabling policy and the State Governments and Union Territories would be free to take their own decision in regard to implementation of this policy.

(Source: DIPP Press Note No. 5 of 2012)

FDI in Civil Aviation Sector

The Government of India has permitted foreign airlines to invest, under Government approval route, in the capital of Indian Companies, operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital.

Such investment shall be subject to the following conditions:

The 49% limit will subsume FDI and Foreign Institutional Investors investments.
The investments so made would comply with the relevant regulations of Securities and Exchange Board of India (SEBI).
A Scheduled Operator's Permit can be granted only to a Company
- That is registered and has its principal place of business within India;
- The Chairman and at least two-thirds of the Directors of which are citizens of India; and
- The substantial ownership and effective control of which is vested in Indian nationals.
All foreign nationals likely to be associated with Indian scheduled and non-scheduled air transport services, as a result of such investment shall be cleared from security view point before deployment;
All technical equipment that might be imported into India as a result of such investment shall require clearance from the Ministry of Civil Aviation.

(Source: DIPP Press Note No. 6 of 2012)

Foreign investment in Companies operating in the Broadcasting Sector

The Government of India has amended the foreign investment limits, in the companies engaged in providing broadcasting carriage services, subject to the terms and conditions, as may be specified by the Ministry of Information and Broadcasting from time to time, in the following manner:

Teleports, Direct to Home, Cable Networks: Increase in Foreign investment limit from 49% to 74% subject to:
- Foreign investment up to 49% being permitted under the automatic route; and
- Foreign investment beyond 49% and upto 74% being permitted under the Government route;
Mobile TV: Permitting foreign investment upto 74% subject to:
- Foreign investment up to 49% being permitted under the automatic route; and
- Foreign investment beyond 49% and upto 74% being permitted under the Government route;

The foreign investment limit, in companies engaged in aforesaid activities, shall include, in addition to FDI, investment by Foreign Institutional Investors (FIIs), Non-resident Indians (NRIs), Foreign Currency Convertible Bonds (FCCBs), American Depository Receipts (ADRs), Global Depository Receipts (GDRs) and convertible preference shares held by foreign entities.

(Source: DIPP Press Note No. 7 of 2012)

Foreign investment in Power Exchanges

The Government of India has permitted foreign investment, upto 49% in Power Exchanges, registered under the Central Electricity regulatory Commission (Power Market) Regulations, 2010, as under:

Such foreign investment would be subject to an FDI limit of 26% and an FII limit of 23% of the paid-up capital;
FII investment would be permitted under the automatic route and FDI would be permitted under the Government approval route;
FII purchases shall be restricted to secondary market only;
No non-resident investor/ entity, including persons acting in concert, will hold than 5% of the equity shares in these companies; and
The foreign investment would be in compliance with SEBI regulations; other applicable laws/ regulations; security and other conditionalities.

(Source: DIPP Press Note No. 8 of 2012)

Overseas Direct Investments by Indian Party – Rationalisation

The guidelines relating to submission of Annual Performance Report (APR) in terms of Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004 has been amended as under:

An Indian party, which has set up/ acquired a Joint Venture (JV) or Wholly Owned Subsidiary (WOS) overseas in terms of the said Regulations, shall submit, to the designated Authorised Dealer every year, an APR in Form ODI Part III in respect of each JV or WOS outside India, and other reports or documents as may be specified by the RBI from time to time, on or before the 30th of June each year. The APR, so required to be submitted, has to be based on the latest audited annual accounts of the JV/ WOS, unless specifically exempted by the RBI.

The exemption granted for submission of APR based on the unaudited accounts of the JV/ WOS subject to the terms and conditions as specified in the A.P (DIR Series) Circular no. 96 dated March 28, 2012 shall continue.

(Source: RBI A.P. (DIR Series) Circular no. 29 dated September 12, 2012)

Non-resident guarantee for non-fund based facilities entered between two resident entities

Borrowing and lending of Indian Rupees between two persons resident in India does not attract the provisions of the Foreign Exchange Management Act, 1999 ('FEMA'). In case where a Rupee loan is granted against the guarantee provided by a person resident outside India, there is no transaction involving foreign exchange until the guarantee is invoked and the non-resident guarantor is required to meet the liability under the guarantee. The Reserve Bank of India (RBI) vide Notification no. FEMA 29/2000-RB dated September 26, 2000 has granted general permission to a person resident in India, being a principal debtor, to make payment to a person resident outside India, who has met the liability under a guarantee.

RBI has now decided to extend the facility of non-resident guarantee under the general permission for non-fund based facilities (such as Letters of Credit/ Guarantees/ Letter of Undertaking / Letter of Comfort) entered into between two persons resident in India. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor would continue, as detailed in A.P. (DIR Series) Circular no. 28 dated March 30, 2001.

(Source: A. P. (DIR Series) Circular No. 20 dated August 29, 2012)

Foreign Direct Investment by citizen/ entity incorporated in Pakistan

RBI has allowed that a person, who is a citizen of Pakistan or an entity incorporated in Pakistan may, may with the prior approval of the Foreign Investment Promotion Board of the Government of India, purchase shares and convertible debentures of an Indian company under Foreign Direct Investment Scheme, subject to the terms and conditions specified in Schedule 1 of FEMA 20.

Editorial Team: Bomi F. Daruwala, Gautam Chopra, Hemant Puthran, Rupesh Jain and Shilpi Shivangi

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India: FEMA/FDI: Foreign Direct Investment (FDI) In Single-Brand Product Retail Trading