Rules for Foreign Direct Investment in India

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.