Government’s clarification on FDI policy on single brand retail trading for goods procured from SEZ

Introduction

Under the extant Foreign Direct Investment (FDI) policy, 100% FDI is permitted under the automatic route in Single Brand Retail Trading (SBRT) entities, subject to their compliance with the local sourcing requirements, whereby an SBRT entity having FDI of more than 51% must ensure that 30% of the value of goods are procured from India. The Department for Promotion of Industry & Internal Trade (DPIIT) on 25 February 2020 issued a clarification around the FDI policy of the Government of India on SBRT as contained in para 5.2.15.3 of Press Note 4 (2019) as outlined below:

Key Issues Clarified - Goods procured from SEZ’s by the single brand retail traders, to qualify local sourcing norms

In tune with the ‘Make in India’ campaign and the FDI policy of the Government of India read with Press Note 4 (2019), this clarification will in turn spur the country’s exports in coherence with the Government’s commitment to transform India into a global manufacturing destination.

Comments

The FDI equity inflows into India from April-September 2019 grew by 15% to USD 26 billion (about INR 1,82,000 crore) and the proposed clarification augers well for further increase in foreign exchange inflows. It will encourage foreign investment in the SBRT entities and would usher in the much-needed impetus for boosting the country’s economy.

-      Atul Pandey (Partner) and Achint Kaur (Principal Associate)

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