New Foreign Investment Hub

Second Wave of Reforms

The last quarter saw a very active Government taking all possible steps to boost investor confidence in the Indian market. Undeterred by growing negative publicity and corruption scandals, the Manmohan Singh Government took a hard stand on some critical and long pending policy reforms, which are being seen as a huge milestone towards revival of the Indian economy.

The Government of India ("GOI") has recently introduced certain robust economic reforms relating to foreign direct investments ("FDI"). Some significant reforms and the implications thereof are set out below.

  1. Multi-brand product retail trading

    The GOI has now approved FDI in multi-brand retail trading, up to 51% through government approval route. The Department of Industrial Policy and Promotion ("DIPP") has vide Press Note No. 5 of 2012, notified this amendment to the consolidated FDI policy dated 10 April 2012 ("Consolidated FDI Policy"). FDI in multi-brand retail trade is permissible subject to the following conditions:

    The State government will have the prerogative to decide as regards the implementation of the policy in the concerned state. Fresh agricultural produce, including fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat products, may be unbranded. The minimum FDI to be brought in by a foreign investor is US$ 100 million. 50% of total FDI brought in is required to be invested in 'backend infrastructure' within three years of first tranche of investment. At least 30% of the value of procurement of manufactured processed products shall be sourced from Indian 'small industries' which have a total investment in plant and machinery not exceeding US$ 1 million. This condition has to be met in the first instance, as an average of five years' total value of the manufactured/ processed products purchased, beginning 1st April of the year during which the first tranche of FDI is received. Thereafter it has to be met on an annual basis. The company in which FDI is made will have to self certify compliance of (ii), (iii) and (iv) above, which may be verified, as an when required. Retail stores can be set up only in those cities which have a population of more than 1 million as per the 2011 census.. FDI will not be allowed in online trading or e-commerce. Government will have the first right of procurement of agricultural products. 2. Single-brand product marketing

    The government had previously raised the FDI limits from 51% up to...

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