Foreign Direct Investment (FDI) IN TRADING

Chapter 6.1 of Consolidated FDI Circular 2 of 2011 dated 1^st October 2011, lists prohibited sectors for FDI, topping the list is

“Retail Trading (except single brand product retailing, where 51% FDI Is allowed)

Clearly no FDI is permitted in Retail trading (B2C) except the exception of single brand product trading. 

Does this mean FDI will not be allowed in trading at all?  The answer is NO.

As per Chapter 6.2.16 - 100% FDI is allowed in

“Cash & Carry Wholesale Trading / Wholesale Trading (including sourcing from Medium & Small Enterprises)”

Cash & Carry Whole Sale Trading / Wholesale trading means:

“Sale to Retailers, industrial, commercial or professional business and not to consumers directly, in short All B2B transactions irrespective of the size or volume of sales”.

Salient Features of FDI in Cash & Carry Wholesale trade

1.      Wholesale trade should be made only to buyers who have either

a.      A VAT / Excise registration or

b.      A Trade licence under Shops & Establishments Act or

c.      A Trade licence for carrying out retail trading from Government Authorities or

d.      A certificate of Incorporation as a Trust or Society and materials purchased for their self consumption

2.      It is the responsibility of the FDI Venture to keep all details of the buyers and buyer’s compliance with any one of the points made in point 1 above

3.      Wholesale trade is not permitted among group companies beyond 25% of the total turnover of the FDI venture

4.      Under Wholesale Trade the FDI venture is free to extend credit for his sales subject to applicable regulations, if any

5.      Cannot open retail outlets

6.      Cannot sell to consumers directly only B2B allowed

Conclusion

100% FDI is possible in B2B ventures, 51% FDI is allowed in Single brand retailing