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India allows 100% Foreign ownership of Single Brand Retail businesses - subject to restrictive conditions
At the close of business of 10 January 2012, the Government of India announced that the limit for foreign shareholding in an Indian company involved in single brand retail will be increased from 51% to 100%. However, there are conditions attached which need further clarification and may be substantially problematic for some foreign brand owners.
For those foreign Single Brand retailers who would like to hold shares beyond 51% there is now a requirement that they have to source at least 30% of the value of products sold, from Indian small industries/ village and cottage industries, artisans and craftsmen. "Small industries" are defined as industries which have a total investment in plant & machinery not exceeding US $1 million.
This is in addition to conditions that were already present in relation to single brands which were that:
- products sold should be of a single brand only;
- products should be sold under the same brand internationally
- "single-brand" product-retailing would cover only products which are branded during manufacturing;
- the foreign investor should be the owner of the brand and not just a licensee;
- consent for investment in a company involved in the retail trade of single brand products has be obtained from the Government.
This liberalisation may be good news for some foreign single brand retailers who already source or can source from Indian "small industries" and who prefer to own and control their business. However, in reality, this requirement to source from micro and small enterprises will be problematic for many brand owners and may be seen as an "invisible barrier" to widespread foreign ownership of single brand retail businesses in India.
For further information, please contact Chris Wormald, Partner at Field Fisher Waterhouse LLP