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The retail juggernaut is ready to roll in India. After the announcements to liberalize foreign investment in both Single & Multiple brand retail ( SBR & MBR ) the current Congress government was virtually under siege. It was widely speculated that the government would have to roll back the approval to invest in MBR due to pressures received from nearly all political opposition parties in India.
However after a series of general debates the government decided to let the Parliament of India decide the issue. Based on the debates & voting held on the 5th & 7th December 2012, the Indian parliament ratified the decision of the current government to go ahead with foreign investment in MBR.

The Lok Sabha ( direct elected representatives ) voted 253 in favor, 218 against. 43 walked out while 31 were absent in a total house of 545.
Similarly the Rajya Sabha ( the indirect representatives ) voted 123 in favor, 109 against. 9 walked out,2 were absent while 1 abstained, in a total house of 244.

These numbers show that the sentiment was nearly evenly pitched and India & it’s people have barely accepted foreign investment in MBR but with the parliament’s approval the new investment climate is here to stay and foreign investor can safely enter the Indian market without a worry that the FDI policy in retail would now be reversed.

Steps forward

The Indian economy is gearing up to welcome a new kind of foreign investments into retail. This particular round of investment should be benign for the economy as none of the investments that come in would be short term or qualify as hot money. Consistent & long term investment flows should improve the farm supply chain, commercial real estate as well as push the standard of the technology. In the short to medium term the Indian currency rates should improve. Long term benefits for the economy would depend on how well we manage to restrict easy & cheap imports.
The Indian governments who would manage the investment & policies for MBR, in the times to come, would have a golden chance to use the foreign capital to broad base our economy. They could also fail if they don’t have a clear policy on imports.

Correct signals

The current government has sent out the correct signals by disposing off applications with the Foreign Investment Promotion Board ( FIPB ) towards SBR very promptly. Even Walmart, potentially the largest investor for MBR has been put under scrutiny for alleged lobbying charges. Lobbying is not legal in India & so the current government is sending out the correct signals that they are serious about a mutually beneficial FDI policy in retail.
IKEA’s application had run into some controversy due to definition of what activities they could carry out in India. IKEA wanted to include various facets of it’s business including cafes within it’s stores, while the FIPB wanted IKEA to restrict itself to selling it’s products only. IKEA contended that want to ensure the shopping experience was same as in other parts of the world. With nearly a Rs. 10,500 Crores investment at stake the FIPB & ministry made an exception and went ahead with the approval on the terms that IKEA sought. This has made it clear that the Indian government is keen to make the FDI into retail a grand success.

With political, legal & administrative will strong, we all await a new glorious chapter of new investments into retail in the next three years.

Legal requirements

For the new companies who plan to enter the Indian retail space, it is now time to look at the process of getting their business off the ground. India is a regulated market & a socially responsible company should be ready to complete various legal requirements before they are ready to open the door to the Indian population. We have tried to put in an indicative list of approvals that would be required for a foreign retailer when they set up business in India. The exact requirements would depend on the kind of products being sold and the city & state where the retails showrooms would be set up. The list is indicative only:

1.    Shops and Establishment License

2.    Trade License

3.    Central Excise License

4.    State Excise License

5.    Value Added Tax (VAT)

6.    Central Sales Tax (CST)

7.    Service Tax

8.    Professional tax

9.    Employees Provident Fund

10.    Employees State Insurance Corporation (ESIC)

11.    Labor clearance from ministry of labor.

12.    Clearanances from the local Municipal corporation.

13.    Drug license of any OTC products would be sold.

14.    Wieghts & measurement clearance.

15.    Ministry of health & local food commissioner for stored diary & meat products.

16.    Other Licenses – depending upon the state & nature of business.


A good law firm or an advisory can ensure a smooth passage into the Indian market.
The Indian economy is at another very interesting crossroad. With the right political will & regulations the retail FDI could script the next growth story for India.

Gautam Khurana
India Law Offices
office@indialawoffices.com

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