Foreign Direct Investments (FDI) in Fast Moving Consumer Goods (FMCG): Lawyers Advice on Foreign Investments in India | | FDI Attorney in Delhi NCR | FDI Attorney in India | India Business Entry

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The retail sector in India sells goods to the customers which satisfy their wants or needs. These goods are called consumer goods or final goods. The Fast Moving Consumer Goods (FMCGs) also falls under the category of consumer goods where such goods are sold at a quicker rate and have relatively low cost. Foreign entities can sell their goods or products in India through their own retail shops. India does not prohibit the flow of Foreign Direct Investment (FDI) in retailing, but has allowed the FDI in retail for specific products.

There are three forms of trading of consumer goods under the Foreign Direct Investment (FDI) Policy. There are:
a) Single Brand Product Retail Trading
b) Multi Brand Retail Trading
c) Food Product Retail Trading

A foreign investor is permitted to set up his business in India by establishing a Company and operating the Company under the rules and regulations followed in India for Indian companies. Such foreign investments are regulated under the Foreign Exchange Management Act (FEMA), 1991 and can be freely repatriable.

Foreign investors investing in the retail sector of India, must comply with the following regulations provided in the FDI policy:

1) FDI guidelines for Single Brand Product Retail Trading:
i. 49% FDI is permitted in Single Brand Product Retail Trading under the automatic route, while beyond 49% will be permitted but under the Government route wherein application for seeking approval from the competent authority is needed.
ii. For Single Brand Product Retail Trading, the application for seeking approval of the Government must be made to the Secretariat for Industrial Assistance (SIA) in the Department of Industrial Policy & Promotion (DIPP).
iii. The foreign entity shall be permitted to carry out single brand product retailing either directly or through a tenable legal agreement with the owner of the brand for undertaking this type of trading.
iv. The Indian entity has the responsibility of showing compliance with the above condition.
v. The foreign entity or the investing entity must provide evidence of approval, as well as a copy of the license/sub-license/franchise agreement which indicates compliance with the given condition.
vi. All the evidence must be filed with RBI for the automatic route and with the Department of Industrial Policy & Promotion (DIPP) for necessary approval.
vii. A single brand retail trading entity is permitted to undertake retail trading through E-Commerce if operating through brick and mortar stores.

2) FDI guidelines for Multi Brand Retail Trading:
i. 51% FDI is permitted in Multi Brand Retail Trading under the Government route. FDI under the automatic route is not permitted in this type of trading.
ii. The competent authority for permission of approval under the Government route is the Department of Industrial Policy and Promotion (DIPP).
iii. Minimum amount as FDI in multi brand retail trading by foreign investors would be US$ 100 Million.
iv. Self-certification by the Company ensuring compliance shall be cross-checked whenever required. And the investors must maintain accounts which shall be certified by the statutory auditors.
v. Multi brand retail trading by way of E-Commerce shall not be permitted for companies with FDI.

3) Food Product Retail Trading:
i. 100% FDI under the Government route is allowed in retail trading (Single and Multi Brand Retail Trading), inclusive of E-Commerce which includes food products that are manufactured and/or produced in India.
ii. Prior approval from the Government is required for retailing of food products.
iii. Applications for FDI in Food Products Retail Trading would be dealt with the Department of Industrial Policy & Promotion (DIPP) for seeking approval.

Under the FDI Policy, companies can engage only in Business to Business (B2B) E-Commerce and not Business to Consumer (B2C) E-Commerce. Hence the responsibility on the seller increases in ensuring customer satisfaction and proper delivery of goods to the customers. Products which are sold on an E-Commerce platform shall be the sole responsibility of the seller and his details that is, his name, address, etc. must be made available on the website which is selling goods/services electronically.

In this way the Government has imposed certain guidelines which must be followed and complied with by the foreign investors. These recent changes made by the Government shall in turn provide stimuli to the economy which would further attract more investments into India, thus becoming a dynamic sector of the country.

Important Link:
https://dipp.gov.in/sites/default/files/CFPC_2017_FINAL_RELEASED_28.8.17.pdf
Authored By: Adv. Anant Sharma & Sameera Singal