Rules for Foreign Direct Investment in India

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Union Government clarified Rule for Multi Brand Retail Entry

The Union government on 3rd June, 2013 issued guidelines defining clearly the concept of group company in the foreign direct investment ( FDI ) policy.

The new policy is estimated to address concerns over back entrance of foreign retailers into India through the wholesale route.

The foreign Direct Investment puts a limit on sale by such a foreign investment funded venture to its ‘group company’ while allowing 100% FDI in cash & carry wholesale trade.

Details of Group Company

Group company means when two or more enterprises, which directly or indirectly are in a position to either exercise 26% or more voting rights in the other enterprise or appoint more than 50% of members of board of directors in other enterprise.

However, the experts are not sure how the group company would impact world’s biggest retailer Walmart which has a wholesale cash&carry venture in India with the Bharti group, Bharti – Walmart.

It is worth mentioning here that Walmart owned slightly more than 50% stake in Bharti – Walmart, which has about 20 cash & carry stores in India. Majority of Bharti – Walmart sales are to Bharti Retail, a Bharti Group company that runs around 200 retail stores under the Easy Day brand.

But, as per the rules, a FDI wholesale project cannot have more than 25% of its sales to a group company. There were charges that Bharti – Walmart’s sale to Bharti Retail violated this group sale rule.

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