Fdi in retail & wholesale 180310


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Fdi in retail & wholesale 180310

  1. 1. FDI Policy in Retail and Wholesale Trading and relevant provisions of FEMA Presented by: Mr. Paresh P. Shah P.P. Shah & Associates Chartered Accountants Email: paresh@bom3.vsnl.net.in BCAS FEMA Study Circle Meeting
  2. 2. Overview of Discussion Trading activities of PROI – A review Regulatory framework Nature of trading activities and its meaning Regulatory framework – comparision Activities of PROI in India, Alternative Present thinking of Government of India Retail trading – A rationale and critical analysis International scene Summary of issues at the study circle
  3. 3. Trading activities of PROI – A review Trading activities on repatriation basis Trading on non repatriation basis Trading activities under auto route Trading activities and entry option to PROI Trading activities under policy of the Government
  4. 4. Trading activities-Regulatory framework Trading activity and Entry options Liaison office, Branch and Project office of PROI – Notification No. 22/2000-RB, dt. 3 rd May 2000 Automatic route of FDI under Notification No. 20; Schedule I for companies Automatic route of FDI under Notification No. 20; Schedule 4 for Non Resident Indians. Paragraph 1: “No purchase of shares or convertible debentures of an Indian company shall be made under this scheme if the company concerned is a Chit fund or a Nidhi company or is engaged in agricultural/plantation activities or real estate business or construction of farm houses or dealing in TDRs Trading activity through proprietary and partnership concern in India. Notification No. 24 states, the firm or the proprietary concern is not engaged in any agricultural/plantation activity or real estate business or print media sector
  5. 5. Trading activities-Regulatory framework Activity of a branch or unit in SEZ Trading activity & Government Policy www.dipp.nic.in
  6. 6. Government Policy – Prohibitions Prohibitions on investment in India Foreign investment in any “Form” Chit Fund, Nidhi, Agricultural or Plantation activities, Real estate business or construction of farm houses, trading in TDRs, Lottery, Gambling & Betting Investment in the form of “FDI” Retail Trading (except Single brand trading), Atomic energy, Lotteries, Gambling and betting, Chit fund, Nidhi, trading in TDRs and activities not opened to private sector investment No licencing, franchising, trademark licence and technology in lottery, gambling & betting business Recent Press Note No. 2, 3, 4, draft Press Note 2010 and their implications
  7. 7. Direct & Indirect Foreign Investment Rules for computation of direct & indirect foreign investment in Indian Companies (PN 2 of 2009) Direct Foreign Investment : Investment directly by a non resident entity into Indian Company, direct foreign investment = % of equity held Indirect Foreign Investment: Investment through Indian Companies Owned and Controlled by resident Indian citizens and/or Indian Companies which are owned and controlled by resident Indian citizens, i.e. more than 50% equity and power to appoint majority of directors with residents, Indirect FDI = Nil Owned and Controlled by non resident entities as WOS: Indirect FDI = % of equity held in investing Indian Company Other:Indirect FDI = % of equity held by investing Indian Company Foreign Investment in Indian Companies shall include all types of foreign investments, except FDI by NRIs on non repatriation basis (Schedule 5 to Notf. 20)
  8. 8. Computation of Direct Foreign Investment 20% Foreign Investment in B Co Direct - 20% Indirect – 26% NRE: Non Resident Entity NRE A Co B Co 75% 26%
  9. 9. Computation of Indirect Foreign Investment Indirect FI NIL 26% 80% 75% NRE: Non Resident Entity FI: Foreign Investment NRE A Co B Co 49% 100% NRE A Co B Co 75% 26% NRE A Co B Co 75% 80% NRE A Co B Co 75% 100%
  10. 10. Trading - Activity of Branch & Companies Differentiate between the activity of branch of PROI & companies with FDI by PROI Permitted activities Approval or Auto route Branch is under auto route but not all the trading activities of the company Branch requires approval of RBI/ADs whereas Single brand trading and other cases of trading requires FIPB approval Distinction is narrowed down after 30 th December 2009 [Refer AP (DIR Series) Cir. No. 23]
  11. 11. Meaning of ‘Trading’ & Nature of Activities “ Wholesale” trading [P. No. dt. Feb 7, 2001] The wholesale trader is a one who sells his/its goods to retailers and not to consumers “ Cash and carry wholesale” Cash and carry implies “quick delivery of goods” but not as distinguished from “credit” vis-à-vis cash [Clarification dt. 6 th August 01] Thus cash and carry wholesale includes credit “ Retail trading” The activity of buying and selling whereby dealer sells the goods to consumers
  12. 12. Meaning & Nature of Activities Commonly known nature Wholesale & Retail Nature of activity & Regulatory framework Trading activity of the Export House (Schedule 1 to regulation 5 of Notification No. 20), now deleted Trading in TDRs Cash & carry wholesale trading “ Single brand” retail trading Retail trading Government Policy Exports Bulk imports with export/Ex bonded warehouse sales Cash & carry wholesale trading Other import of goods & services provided at least 75% is for procurement and sale of goods & services among the companies of the same group
  13. 13. Other Trading Activities subject to Exim Policy Companies providing after sale service Trading of High tech item/s requiring specialised after sale service Trading of items for social sector Trading of items sourced from small scale sector under its Brand name by companies Domestic sourcing of products for Exports Test marketing B2B E-commerce activities
  14. 14. Present Government Policy & rationale Trade deficit Thrust is priority on sector – Infrastructure & financial sector Trading approval so far and fate of the applications Concept of “organised retail trade” Protection to small vendors in villages & town Proposal by Ministry of Food Processing industry, GOI Working group in Ministry of consumer affairs
  15. 15. International factors – Retail trade Presence of MNCs in India – Supply chain management & its impact WTO & Retail trade Brazil, China and major countries have opened up the sector Flood Gate of Foreign Exchange Reserves
  16. 16. Thank You