Franflash: Updated Indian foreign investment policy
The Indian Ministry of Commerce and Industry, released their updated sector-wide foreign investment policy on 31st March 2011. It was a mixed bag of good and disappointing results.
Foreign parties are still prohibited from operating multi brand outlets, although some clarifications were made regarding the type of activities which they can become involved in, such as wholesaling.
However on the upside, the onerous requirements imposed on businesses that had joint ventures or technical collaboration agreements/ franchise agreements with Indian parties prior to 12.1.2005 have been removed. Formerly such parties had to obtain no-objection letters from their existing business partners before entering into any new deal in the same area of business, and prove to the Government of India that the existing business would not be jeopardised by the new business.
As a result, Franchising still seems, by far, the best option for foreign brands, as gradually the main obstacles have been removed. Last year the foreign exchange restrictions were fully removed and clarified so that franchisors could repatriate commercially viable payments out of India. Now, the requirements under Press Note 1 2005 which was obstructive to parallel development in the same area of business and which applied to franchisors who were doing business in India prior to 2005, has been removed.