FDI In Retail Trading In India

FDI In Retail Trading In India

The Indian retail sector has tremendously grown over the last decade with a significant shift towards organised retailing format. India’s retail market contributes to over 10 percent of the country’s Gross Domestic Product (GDP). The share of the Indian retail market is expected to increase by 60 percent to reach USD 1.1 trillion by the year 2020. Typically, retail is understood to be the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Interestingly, courts in India have defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). Traditionally, the retail sector in India was considered to be a sensitive sector especially due to factors, such as (i) the employment it generates and (ii) of its early and undeveloped stage (particularly the domestic organized retail segment) it is not in a position to compete with large players. As a result, the Government policy has largely been to protect agriculturist and small retailers and therefore has discouraged entry of bigger retailers. However, that has now changed, and the government of India has revised its foreign direct policy (FDI Policy) to allow foreign direct investment (FDI) in the retail sector subject to certain conditions. Some of the key changes are discussed below:


While opening of the retail sector to FDI is a welcome step, some regulatory aspects need to be examined by the government to ensure robust growth of this sector. Some of these aspects relate to (a) local sourcing requirements which adversely impacts quality control for big retail giants. Further, the relaxations, from local sourcing requirement, provided to the SBRT entities, having state of the art technology, needs clarity as there is no specific definition set out in the FDI Policy setting out what constitutes state of the art technology; (b) government approval in connection with MBRT and food retail can be time consuming resulting in high costs for such entities; (c) Restrictions on ecommerce entities having relations with any of its vendors needs to be balanced keeping in mind the interest of the consumer as such relations do benefit the end consumer in the nature of discounts etc.

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