NEW FDI NORMS DISRUPTS RETAILER'S INDIA PLANS

New guidelines have been issued by the Government of India in respect of FDI ( Foreign Direct Investment) in Wholesale or Cash and Carry trade. These would impact global giants like Wal-Mart, Tesco and Carrefour who would now need to relook at their agreements with their Indian partners as well as their strategy for entering the Indian retail space.
 Under the current policy, 100% FDI is permitted in wholesale trading and 51% in single brand retail. No foreign investment is allowed in multi-brand retail.
 The Dept of Industrial Policy and Promotion of the Govt of India has defined wholesale business as sale of merchandise to other retailers, commercial, institutions or other wholesalers for the purpose of trade and business and not for personal consumption.

To plug loopholes that existed in the present norms and to prevent retailers from making a back door entry into the growing retail space in India, new guidelines have been issued. These come into effect from 1st April 2010. It is important to note that a transaction would now be defined as wholesale or retail on the basis of the type of customer to whom the sale is made and not on the basis of volume of sales.

Some of the important guidelines are :

1. To undertake wholesale trade, required licenses, permits as per State Governments Legislations need to be obtained.
 2. Sales would be considered as wholesale only when made to establishment holding a) VAT/Sales Tax/Service Tax/Excise Duty Registration b) holding trade licence issued by a Govt authority c) holding permit for holding retail trade d) institutions have certificate of incorporation.
3. Establishments in Wholesale Trade have to maintain complete records of registration, licence, amount of sale etc on a daily basis.
 4. Wholesale trade would be permitted amongst companies of the same group but such trade is not to exceed 25% of the total turnover of the wholesale activity. Further the wholesale made to the group companies should be for their internal use only. This is to prevent front end retail from coming in the garb of wholesale or Cash and Carry business.
5. The wholesale trader cannot open retail shops to sell to the consumer directly.

It would be interesting to see how the large global players now react to these new set of rules which seems to have majorly altered the playing field.