Amended FDI regulations allow single-brand retail companies to sell online
Single-brand companies have until now been unable to engage in retail trading of any form through e-commerce. This is, however, about to change.
Under the revised FDI regulations, single-brand retail companies will be allowed to sell on an e-commerce platform if they have a licence for setting up physical outlets. Accordingly, any brand entering India will have to apply for a licence to set up stores. Once it secures the licence, it can sell products online through the automatic route.
At present, single-brand retail allows 49% FDI under the automatic route, which can rise to 100% with Government approval.
The highlights of the revised FDI regulations include the following measures:
- Timing for local sourcing requirement – the current FDI policy on Single Brand Retail Trading (SBRT) stipulates that sourcing of 30% of the value of goods purchased begins on the date of receipt of FDI. However, it has now been decided that the sourcing requirement has to coincide with the opening of the first store.
- Local sourcing waiver in certain cases - to give high-end, single-brand entities easier access to India, the Government has announced that in cases of ‘state-of-the-art’ and ‘cutting-edge technology’ sourcing, norms can be relaxed subject to its approval.
- E-commerce – an entity which has been granted permission to undertake SBRT will now be allowed to engage in e-commerce activities.
- The same entity can carry out both single brand retail and wholesale activities - in line with the current FDI policy, in wholesale/cash and carry activities, 100% foreign investment is permitted under the automatic route. FDI policy on this sector also states that a wholesale/cash and carry trader cannot open retail shops to sell to the consumer directly.
However, it has now been decided that a single entity will be permitted to undertake both single brand retail trading and wholesale activities on the understanding that both its business arms comply separately with FDI conditions on wholesale/cash and carry and SBRT.
- Duty free shops - 100% FDI is now permitted under the automatic route in duty free shops located and operated in customs bonded areas.
The liberalisation of single brand retail trading and e-commerce is widely considered to be a step in the right direction. The measures listed above have now come into operation and a press notice from the Indian Ministry of Commerce is expected soon.
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