Foreign Investment

FDI Under SBRT (Single Brand Retail Trading): Analysis

This article throws light on the concept of the FDI under Single Brand Retail Regime, where an analysis of the new FDI policy has been discussed. This is regulated under the approval route of Foreign Direct Investment under approval route and automatic route.

The amendment has been brought by the Central Government where the cabinet approved the amendments to liberalise the Single Brand Retail Regime. Where the notification issued by the DPIIIT Press Note 1 in 2018, where the amendment was effectuated the change in FEMA (Transfer of Issue of Security by a person resident outside India) Regulations, 2017 and 100% FDI was permitted under automatic route to the SBRT Regime.

A Single Brand Retail Regime is where the multiple products under one brand name are sold. We have so many business houses who have established chain of single brand retail regime such as Hindustan Uniliver Limited, Starbucks, ITC etc. These are some well established brands selling multiple products under different categories.

With the introduction of FDI in retail business. The government has ensured 100% FDI under approval route in the SBRT Regime. The norms of the FDI have made it compulsory that, when the entity is doing FDI of more than 50% then 30% of the goods must be procured from India.

What is the Aim of the Government in the introduction of Single Brand Retail Regime?

1. Investor friendly

The agenda is to make it more investor friendly and to help the foreign investors operate in e-commerce platforms.

2. Ease of doing of business in India

It is very simple that government has enhanced the system related to ease of doing business. It is good for the economy and it has improved our GDP.

3. Promote MSME’s

The idea is to promote the Indian domestic sectors- micro, small and medium enterprises (MSME’s).

FDI in SBRT is subject to the following conditions such as:

1. Single Brand

All products should be used under one single brand.

2. Sold under same brand intentionally

Which are sold under same brand intentionally, in one or more countries.

3. Branded during manufacturing

Products must be branded during manufacture.

4. Beyond 51% of the FDI, 30% of the value of goods must be procured from India.

In respect of FDI in SBRT, beyond 51% of the FDI, 30% of the value of goods, procured should be sourced directly from India, preferably from MSME, and Cottage Industries, artisans, craftsmen, in all sectors.

How Single Brand Retail Regime is different from the multi brand retail regime?

The markets of small shop owners have come up in the difficulty due to the FDI. However, there is a difference between, multi brand retail regime and Single Brand Retail Regime. In single brand retail regime, they bring only the luxury or premium brands or goods or services, so that it does not create direct conflict with the small business owners/enterprises in the Indian Markets.

Whereas the Multi brand retail regime means, where the enterprise selling multiple products under one roof, such as, Big Bazar, Lifestyle, shoppers Stop etc. The seller is selling all types of products from different brands.

Here, a comparison can be drawn that when single brand retail regime is allowed, it creates no conflict with the small retail shops in India. Whereas, the multi brand retail regime creates, a situation of conflict with the medium to small sized traders, retailers in India.

Hence, in order to avoid the difficulty in the markets, Government of India allowed only 51% of the FDI that too with approval of the government in the multi brand retail regime.

What is 30% norm under FDI in Single Brand Retail Regime?

There are certain points under consideration kept when FDI is more than 51% of the value, and 30% of the goods are to be procured from India.

The purpose is:

A support to new Start-ups

This means that 30% procurement of the goods, which should be sourced directly domestically, when FDI exceeds, 51%. This is a support to new start-ups, where the 30% sourcing requirement have to be met, at an average of 5 years total value of the goods procured. This procurement begins every year at 1^st April, of the commencement of the SBRT business.

The Single Brand Retail Regime is required to meet 30% of the local sourcing norms on an annual basis.

What is Single Brand Retail Regime through E-commerce?

Where the entities are allowed to undertake the Single brand Retail Regime, operations through e-commerce, when it has:

1. The entity in question is operating through Brick-and-Mortar stores.
2. If not, then subject to the condition that, it opens the Brick-and-Mortar stores within 2 years from the date of the start of online store.

When goods are to be considered as procured from local vendors?

The notification has been released by the DPIIT, where it has clarified that goods procured from local vendors shall be considered procurement under 30% rule:

1. If the goods are procured from the SEZ-Special Economic Zone, it would qualify the sourcing of goods from India.
2. In order to be in sync with the Government’s clarification, it has allowed the current market practice and while FDI in an SBRT to be governed by provisions of in para 5.2.15.3 of Press Note 4 (2019),
3. it has however said that the responsibility for compliance with all the conditions enumerated in the FDI policy will be as notified under the Foreign Exchange Management Act,1999^[1] (FEMA) would continue to vest in the manufacturing entity.

Conclusion

It can be concluded that the above chapter Foreign direct Investment can be divided into two parts one is the single brand retail regime and other is the multi brand retail regime. They are governed and controlled under two approval routes like Foreign Direct Investment Approval Route and automatic route. These routes have been defined to ease the of doing of business under the underlined retail mechanism. The purpose is to boost economy. The single brand retail regime has been designed in such a way by the government of India, that it brings no conflict with the local shopkeepers. The idea is to boost the manufacturing in India. The local vendors will be getting more work and employment under the scheme. Looking at the positive side of the scheme, we have seen that after coming of this FDI, the global ranking of India has improved for ease of doing business in India, from 79^th position to 63^rd.

Read our article:Consolidated FDI policy 2020- Major Updates