India’s Liberalised FDI Rules For Single Brand Retailers

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The Indian government has announced a series of new regulations relating to foreign direct investment (FDI) in several key business sectors, including single brand retail, contract manufacturing and digital media. Possibly the most significant change for overseas investors is the revision of a rule that required any single brand retailer with an overseas shareholding in excess of 51% to locally-source at least 30% (in value terms) of its goods available for domestic sale.

As per the revised rules, the 30% domestic sourcing requirement may now be fulfilled by taking into account all locally-sourced goods irrespective of whether such items are ultimately sold within the country or exported. Under the previous rules, goods sourced in India for a single brand retailer’s combined global operation were permitted to be taken into account with regard to the 30% domestic sourcing requirement under certain conditions, but only during the first five years the business was active in India.

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Furthermore, all goods sourced from India for the combined global operations of a single-brand retailer will now count for the 30% domestic sourcing requirement irrespective of whether the goods are directly sourced by the retailer and its group companies or indirectly through a third-party. In addition, both overseas single-brand retailers, as well as multi-brand retail businesses will be permitted to enter the Indian domestic market by establishing an online sales platform without having to first set up physical brick-and-mortar stores. They will, however, be required to open physical outlets within two years of initiating any such e-commerce activity.

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Furthermore, 100% FDI is to be permitted without prior state approval in the fields of contract manufacturing and coal mining (as well as in any coal-processing activities).

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