GOVERNMENT OF INDIAN POLICY AND RETAILING

Indian government seems to be on a gradual but definite path toward allowing foreign retailers into the country.

Retail trade contribute around 10-11% of Indians GDP and currently employs over 4 crore people. In the absence of any significant growth in organized sector employment in Indian in the manufacturing or services sectors, millions are forced to seek their livelihood in the informal sector. At present, foreign retailers can only enter the retailing sector through franchising agreements.
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Background: India Transformed !!

Yesterday Slow rate of growth Bureaucratic Protected and slow Small consumer markets Weak infrastructure Today Strong macro economic fundamentals Encouraging foreign investment Outsourcing destination Growing consumerism Impetus on infrastructure development

India -- the largest Democracy - one of the fastest growing economies in the World!
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ADVANTAGES INDIA HAS TO OFFER

Stable democratic environment over 60 years of independence Large and growing market World class scientific, technical and managerial manpower Cost-effective and skilled labour Abundance of natural resources Large English speaking population Well-established legal system with independent judiciary Developed banking system and vibrant capital market Well developed accountancy, legal, actuarial and consultancy profession
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FOREIGN TRADE POLICY OF INDIA

The foreign trade policy (FTP) 200914 on 27th august, 2009 in the backdrop of a fall in India's exports due to global slowdown. To become a major player in world trade, a comprehensive approach needs to be taken through the foreign trade policy in India. While incorporating the new foreign trade policy of India, the past policies should also be integrated to allow development scope of India's foreign trade. This is the main MANTRA of the foreign trade of India.

OBJECTIVES OF THE FORIGN TRADE PLICY OF INDIA

To double the percentage share of global merchandise trade within the next five years.
To act as an effective instrument of economic growth by giving a thrust to employment generation.

FDI up to 51% in retail trade of single brand products would be subject to the following condition. i. Products to be sold should be a single brand only ii.Products should be sold under the same brand internationally. iii.single brand product-retailing would cover only products which are branded during manufacturing.

What is FDI
Foreign Direct Investment (FDI): 1. FDI stands for Foreign Direct Investment, a component of a country's national financial accounts. 2. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. 3. It does not include foreign investment into the stock markets. 4. FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.
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FDI
1. It is long-term investment 2. Investment in physical assets 3. Aim is to increase enterprise capacity or productivity or change management control 4. Leads to technology transfer, access to markets and management inputs 5. FDI flows into the primary market 6. Entry and exit is relatively difficult 7. FDI is eligible for profits of the company 8. Does not tend be speculative 9. Direct impact on employment of labour and wages 10.Abiding interest in mgt.

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Overview

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Foreign Direct Investment Policy

Foreign Direct Investment (FDI) cross border investment with an objective to establish lasting interest Objective - to encourage FDI to promote industrial & socio-economic development; supplement domestic capital/ technology Foreign investment in India is regulated by Government of Indias FDI policy. The FDI guidelines administered by the Ministry of Commerce and Industry. Department of Industrial Policy & Promotion (DIPP), Foreign Investment Promotion Board (FIPB) and Secretariat of Industrial Assistance (SIA) regulate the FDI Policy GoI has set up the Foreign Investment Implementation Authority (FIIA) to facilitate quick translation of Foreign Direct Investment (FDI) approvals into implementation, to provide a one-window to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various Government agencies Administrative and compliance aspects of FDI monitored by RBI Since 1991, policy has been liberalized substantially to facilitate foreign investment
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Foreign Direct Investment Snapshot

555 55 555 55 555 55
Figures in Million US$
18 4%

555 55
% 56

555 55 222 22

555 55

555 55 555 55

55 55 55 55 5 55- 5 55- 5 22- 2 55- 5 55- 5 5 55 5 55 2 22 5 55 5 55 *

* April 2009 January 2010

Mauritius, Singapore and Cyprus are the favorite jurisdictions for investment into India Foreign investment (FI) from Mauritius constituting 43%* of Indias total FI
*as per information in the Press
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India's Hottest FDI Destinations

1. Maharashtra Maharashtra received the lion's share of the FDI $2.43 billion (Rs 11,154 crore), which is 35% of the total FDI inflows in to the country,. 2. National Capital Region NCR received $1.85 billion (Rs 8,476 crore) in FDI during the period. The region accounted for 20% of the total FDI. 3. West Bengal, Skim, Andaman & Nicobar Islands These states attracted the third highest FDI inflows worth $1.416 billion (Rs 6,050 crore) 4. Karnataka - $936 million (Rs 4,333 crore) 5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs 4,141 crore)

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Sectoral caps raised; Conditions relaxed;

Up to 100% under Automatic Route in all sectors except a small negative list Up to 74/51/50% in 111 Sectors under Automatic Route 100% in some sectors

Up to 51% under Automatic Route for 35 Priority Sectors Allowed selectively up to 40% Pre 1991 1991

1997

2000

Post 2000
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Recent Developments

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Contribution of FDI in Indias economic development is an acknowledged fact. From inception policy subject to extensive amendments from time to time through Press Notes, circulars and clarifications Press Note 2,3 and 4 of 2009 issued to provide clarity on indirect FDI and downstream investment FM stressed the need for a consolidated FDI policy in Budget 2010-11 Draft consolidated policy issued in late 2009 for public comments Consolidated FDI policy issued effective from 1 April, 2010
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FDI Policy Salient Features

Consolidated document of all foreign investment policies /regulations under FEMA, Press Notes, Press Releases and Clarifications issued by DIPP Underlying rationale to promote FDI through a policy framework that is transparent, predictable, simple and clear and which reduces regulatory burden As an investor friendly measure, a new Circular is proposed to be issued every six months Press Notes/Press Releases/Clarifications on FDI in force as of 31 March 2010 will stand rescinded. Savings for actions taken under earlier press notes Use of chapters, headings and definitions Two kinds of foreign investment (i) FDI and (ii) Foreign Portfolio Investment (FPI) FDI strategic long term relationship and establish a lasting interest FPI no intention to influence the management of the invitee entity
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FDI Policy Principles

Capital defined as Equity, Compulsorily Fully Convertible Preference Shares and Compulsorily Fully Convertible Debentures Warrants, partly paid up shares other hybrid instruments not permitted for FDI Investment in other instruments such as: Non Convertible Preference Shares/ Debenture (NCP) Optionally Convertible Preference Shares/ Debentures (OCP) Partially Convertible Preference Shares/ Debentures (PCP) treated as External Commercial Borrowings (ECB) - subject to ECB guidelines

Existing NCP/ OCP/ PCP on cut off date outside sectoral cap till current maturity

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FDI Policy Principles

FDI permitted in: Indian companies including micro & small enterprise Partnership firm/ proprietorship concern only by NRI/PIOs Trust only in the form of VCFs

Not permitted in LLPs or any other entities under consideration Investment by FIIs permitted up to 10% for individual FII and 24% in aggregate Pricing of capital instruments (including conversion price for convertible instruments) is now required to be decided upfront at the time of issue of instruments Investment by FVCI in DVCF set up as trust would now require specific Government approval; FVCI can directly invest subject to FDI policy

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Royalty/ Foreign Technology Agreement

Earlier
Brand name/ trade mark royalty Foreign Technology Agreements All payments covered under Automatic route, subject to limits

Payment Where

of royalty upto 1% of domestic sales and 2% of exports permitted (without technology transfer) royalty for brand name/ trademark and technology, then overall limits of 5% of domestic sales and 8% of exports

Lumpsum

payments not to exceed USD 2 mn (per technology) and 8% of exports

Royalty upto 5% of domestic sales

Now The Government has liberalized the aforesaid limits by permitting, under the automatic route, and without any restrictions: All payments for royalty Lump sum fee for transfer of technology Payments for use of trademark/ brand name
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Procedural Aspects

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FDI Policy Procedural Aspects

Intimation of receipt of share application money within 30 days Purpose of inward remittance clearly stated on FIRC Allotment of shares within 180 days of receipt of funds Funds against which shares not allotted to be refunded Reporting in Form FC GPR within 30 days of allotment In case of Approval route, application to FIPB along with supporting documents All applications to be placed before FIPB within 15 days FIPB empowered to priorities applications based on sector, export potential etc. Violations of regulations attract penal provisions under FEMA
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Sector Specific Guidelines

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Sector Specific Guidelines Prohibited sectors

FDI not allowed in the following: Retail trading (except single brand) Atomic Energy Lottery business Gambling & Betting Chit fund and Nidhi company Trading in Transferable Development Rights Real Estate business or construction of Farm Houses Sectors not opened for private sector investments

Prohibition extended to foreign technology collaboration including licensing for franchisee, trademark, brand name or management contract for lottery, betting and gambling business
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INFRASTRUCTURE

2100% FDI is permitted for

the following activities:

5Electricity Generation (except Atomic energy) 5Electricity Transmission 5Electricity Distribution 5Mass Rapid Transport System 5Roads & Highways 5Toll Roads 5Vehicular Bridges 5Ports & Harbors 5Hotel & Tourism 5FDI in Investing companies in infrastructure/service sector (except telecom sector) will 5 5 5
not be counted towards sectoral cap provided: - Such investment is up to 49% & - The management of the company is in Indian hands. FDI in such companies will be through the FIPB route
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