Indian Government’s Consolidated FDI Policy

The government of India has replaced various Press Notes with a Consolidated Foreign Direct Investment Policy (FDI) framework. Effective from April 1, 2010, it provides a clear understanding of the existing FDI regime to foreign investors. With a view to provide built-in

checks and to prevent misuse of the current policy, the government has come up with specific guidelines on wholesale or cash-and-carry trading (WT). Plugging policy loopholes, the new policy has spelt out the rules for FDI-funded wholesale or cash-and-carry trading ventures, restricting their merchandize sale to registered retailers and not directly to consumers.

The Department of Industrial Policy and Promotion (DIPP), the nodal agency for formulating and administering foreign direct investment policies, has defined wholesale activities. The rules have been incorporated in the consolidated FDI Policy document so that foreign retail stores, allowed in wholesale activities, do not undermine the guidelines which do not allow overseas investments in retail.

Under the policy, 100 per cent FDI is permitted in wholesale trading and 51 per cent in single-brand retail, while foreign investment is not allowed in multi-brand retail. According to the new comprehensive guidelines, whether a transaction is wholesale or retail would depend on the type of customers to whom the sale is made and not the size and volume of sales.

Wholesale trading would mean sale of goods to retailers, industrial, commercial, other professional business users or to other wholesalers, but not for personal consumption. WT can be undertaken as per normal business practices, including extending credit facilities subject to applicable regulations. A wholesale trader cannot open retail shops to sell to the consumer directly.

Excepting for sales to the government, wholesale trading could be done with business entities holding VAT registration, sales tax, service tax and trade licenses. It would also include resale, processing and thereafter sale, bulk imports with export/ex-bonded warehouse business sales and B2B e-commerce.

The rules have been incorporated in the consolidated FDI Policy document so that foreign retail stores, in wholesale activities, do not subvert the guidelines.