The Government of India today issued rules raising the limit on foreign investment in single brand retail trading businesses from 51% to 100%.
Under the new rules, foreign investment in single brand retail trading businesses would require prior approval from the Government, and would be subject to the following conditions.
- The products sold should be of a "single brand" and should be sold under the same brand internationally;
- The products sold should be branded during manufacture and the foreign investor should own the brand; and
- A local content requirement that applies if a foreign investor seeks more than 51% ownership in the Indian venture.
The local content requirement states that if foreign investors seek to hold more than 51% in the Indian venture, at least 30% of the value of products sold would have to "done from" (sic.) small, village and cottage industries, and artisans and craftsmen in India. A unit will qualify as "small" if its total investment in plant and machinery (before depreciation) does not exceed US$ 1 million at any time. Compliance with this condition will need to be certified by the Indian company's auditors on a regular basis.
Clearly, the phrase "done from" is likely to lead to confusion with regard to how the local content requirement will be met (since under India's current investment rules foreign investment in a manufacturing company that also retails its products in India is not regarded as investment in a trading company). One only hopes the government will clarify this requirement soon.