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This article is written by Shruti Chincholkar, pursuing Certificate Course in Competition Law, Practice And Enforcement from LawSikho.


The position of the retail sector in India is developing with the strong demand for several products and services especially in the organized retail over the past decade. Post-liberalisation, privatisation and globalisation, there has been tremendous growth in technology facilitating the development and expansion of the retail sector domestically and internationally. Pertinently, there are stringent legal frameworks with regards to the Foreign Investment Policy in India. Despite that, the retail sector contributes nearly 10% to GDP and 8% to employment. The retail sector can be categorically diversified into two halves: organized retail and unorganized retail. The Foreign Investment Policy of any country is also diversified into two major segments Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).

FDI simply means investments by incorporations or individuals belonging to other countries in the domestic country. Unlike FIP, which involves investments for the short term with any rigid control done by the government. FDI comprises companies incorporated abroad to set up their businesses or subsidiaries in the domestic country in various industries with the object of developing economic growth by the generation of employment. The main result of an increase in foreign investment in terms of FDI is because of LPG  Reforms (Liberalisation, Privatisation Globalisation) Reforms 1991 in India. The government decided to free its economy and markets for increasing the role of private and foreign investments for economic growth and employment generation. Perhaps, with those reforms, India has become one of the five host countries for  FDI in developing countries.

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Foreign Exchange Regulation Act, 1973 (FERA) was enacted which ultimately gave authority to the Reserve Bank of India (RBI) for controlling and regulating the foreign exchange policy in the country. However, FERA was repealed, and the legislature enacted the Foreign Exchange Management Act, 1999 (FEMA) with an aim of stringent regulations and control of the foreign exchange regulations in the country. Foreign Direct Investment (FDI) is ultimately governed and regulated by the provisions of FEMA through Foreign Exchange Management (Transfer or Issue of security by a person resident outside India) Regulations, 2000.

The definition of FDI, as per the aforementioned statute is, investment by an individual or an artificial person residing beyond the boundaries of India who undertakes investments in the different sectors of the economy in India. The governing body which also facilitates FDI in the nation is the “Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry,) ” which issues an FDI Policy that entails the different sectors of the economy. It is pertinent to note that Singapore, Mauritius, Netherlands, USA, and Japan are the top five foreign investors in the financial years of 2019-2020. 

The basic facet of FDI Policy in India is segregated on the level of permission via two entry routes for legal entities as well as individuals who are interested in investments. Firstly, the automatic route and the second is the government route. Permission from the Government of India (GOI) is compulsorily required through DIPP for FDI via the government route. However, no such permission is mandatorily needed in the automatic route. In sum total, FDI Policy regulates as well as facilitates investments done by individuals or entities outside the host country.

Understanding FDI policy in the retail sector focusing on SBPRT

Coming to the retail sector in India, which is mainly divided into organized and unorganised. However, the FDI Policy has different regulations pertaining to retail trading,  Single Brand Product Retail Trading (SBRT), and Multi-brand retailing trading (MBRT). A peculiar change, incorporated in the FDI Policy is allowing an investment of a hundred per cent via automatic route in the SBRT. Analyzing the aforementioned policy, it is inferred that FDI is permitted up to a hundred per cent via automatic route, also to the wholesale sector. 

A very important distinction made in the FDI Policy pertains to e-commerce as is different from the marketplace model and inventory-based model. A simple example of the market-based model is Amazon, Snapdeal, and Flipkart which provide an e-platform by a legal entity through a digital and electronic so as to provide an umbrella of products and services through third-party sellers for making the experience more easy and convenient. In this model, FDI Policy permits up to a hundred per cent through the automatic route itself. However,  contrary to that in the inventory-based model such as Myntra where legal entities not only provide a digital platform to the consumers and also directly own products and services which are sold to the consumers via the e-commerce platform. Here, the policy puts on a restriction over foreign investment via putting the limits and conditions for FDI through automatic route.

FDI policy in single-brand product retailing trading

Single-brand retailing basically means that an individual or an artificial person selling to the end consumers under the umbrella of a single brand for instance Adidas which sells sports shoes, bags, sports apparel in India. Although its home country is Germany. FDI policy pertaining to SBPRT via automatic route is up to 49% beyond this limit prior permission from GOI is mandatory.

The quintessential purpose and the objective in the aforementioned regulations in the foreign investment policy pertaining to the SBPRT are for the economic growth of the country as well as the foreign investors, which are listed as follows: Firstly, the foremost objective is increasing investment with large scale production and wider marketing. Secondly, the advancement of the quality of products for the end consumers. Thirdly, ensuring the proper supply of goods for the end consumers. Fourthly, stimulating sourcing of raw materials or the production process in India itself. Fifthly, for promotion and stimulation of fair competition in the SBPRT industry by welcoming more competitors. 

Now coming to  the specific regulations governing the foreign investments in SBPRT is as follows: 

(i)The entity or the corporation is only allowed to sell goods to the end consumers under a single brand.

(ii) all the products should be sold under the brand in India as well as abroad which means goods cannot be sold under different brands, one in India and another abroad. For instance, Adidas cannot sell its products under any other brand except Adidas itself as it is selling it internationally as well. SBPRT only expands to those goods which are branded in the process of manufacturing. It is pertinent to acknowledge that any individual or corporation not residing in India can invest in SBPRT for one single brand via automatic route directly or also buy a legally tenable agreement with the permission and approval of the brand’s management. 

The notification by DIPP states that only the foreign investment in SBPRT can be done only by the owner of the brand. However, the only loophole in the said regulation is that it completely overlooked the IPR owned by such single brands across the world. Henceforth, this regulation was amended to give authority to only a single foreign investor who can be the owner of the brand or licensee or franchisee proposing to invest in SBPRT in India. It is very important to note that the obligation for compliance with the FDI policy is completely upon the entity operating SBPRT in India. However, the aforesaid regulations are a bit narrow to adapt to the changes in the business environment in recent times. 

There is also a regulation under FDI policy that mandates a minimum of 30% of the value of goods purchased to be sourced locally promoting MSMEs, local artisans, and craftsmen, wherein the direct investment is more than 51% in SBPRT. The aforesaid condition has to be complied with for at least five years from the date of the application is accepted and the FDI is allowed.

Furthermore, investments SBPRT are allowed up to 100% via government route wherein the proposals are scrutinized by DIPP where it checks that all the conditions of the policy are complied with and forwards the same to FIPB for the final decision upon approval or rejection. 

It is very important to note that there are several foreign entities under SBPRT which took the government route for increasing their investment up to 100%.  Some prominent foreign investments in the SBPRT sector IKEA a Swedish furniture retailer applying to invest up to 10,00,50,000 crore rupees, Promod, Paraverse England a footwear brand, Brooks Brothers and Decathlon are recent foreign entities whose proposal was GOI via FPIB among 63 others. 

Comparative analysis of FDI policy in the retail sector of ASEAN countries with India

Comparative analysis between ASEAN’s and India’s FDI policy it is very important to note that both the countries over the years have adopted more open foreign investment regulatory frameworks in FDI as well as economic development. The Association of Southeast Asian Nations(ASEAN) has the most expanding dynamic markets which attract foreign investment in ASEAN as a result of the increasing population of the middle-class. A very peculiar facet to note is that FDI in Southeast Asia surpassed China and it was the only location accounting for FDI in the year 2012. ASEAN successfully managed to attract direct investments by 25% post the Asian crisis period.

India and ASEAN countries also have an open trade relationship with each other through the “Association of Southeast Asian Nations (ASEAN) Free Trade Agreement (AFTA)” which was particularly to aggravate the direct investments and to promote intra- ASEAN investments. Also, “India-ASEAN Regional Trade and Investment Area (RTIA)”  was formed especially for the promotion of free trade and attracting direct investments between ASEAN and India.

The economic growth of Southeast Asian countries is the very result of the growth of exports through foreign investment policy. A direct example to explain this can be reflected by the jump of GDP contribution of the electronic sector from 5% to 45% from 1980 to 1985 in Malaysia. A very important recognition for a positive investment climate is being given to ASEAN member nations which have constantly upgraded their legal framework on foreign investment resulting in the development of the member nations as well as the foreign investors. A very important happening was the signing of “ASEAN Economic Community and the AEC Blueprint ” in 2007 which is the very facet of providing an open investment framework welcoming foreign investors and became the crux for attracting FDI and investments within ASEAN itself.  This was further transformed by signing off the “ASEAN Comprehensive Investment Agreement” in 2009. Furthermore, ASEAN has taken a drastic measure of conforming various agreements upon free trade with a vision of increasing FDI thereby enhancing the economic growth of their member nations.

Table 1.0 “Doing  Business Rankings in ASEAN in 2015.”


































For the aforementioned ranking, it can infer that the Philippines and Myanmar are some of the most closed or restrictive countries in their investment framework. Whereas Singapore and Malaysia are the top rankers that stand to be the hub of foreign investments. Coming to FDI pertaining to retail, in the country of Cambodia, there is as such no limitation on direct investment up to 2000 meters square (GATS). Coming to the FDI Policy in Indonesia, it is only restricted to the large scale of retailing and it also has a condition of partnering with local companies in the same sector however not through the form of equity. A very peculiar example of restrictive investment policy is noted from Laopedia where the retail sector is completely closed for foreign investors as it is only restricted to its citizens. However, FDI is permitted in the sector of wholesale-only via joint ventures with local companies. 

In the country of Malaysia, there is mandatory scrutiny of all foreign investments which entails the retail sector. There is a requirement of getting permission from distributive trade on expanding the current business or setting up new businesses. Also, no foreign investment is permitted in multi-brand retailing (MBRT) of less than 2000 meter squares (GATS). Coming to the country of Myanmar, the country puts complete restrictions on foreign investment in small-sized retailing but allows such investment at a large scale in supermarkets, departmental stores up to a certain limit. However, while forming a joint venture with a local company a foreign investor can only contribute up to 40% of the total investment.

The foreign investment policy in the Philippines is a bit more open in the retail sector as it allows for 100 % FDI wherein foreign entity invests more than $2.5 dollars and starts outlets with a value of a minimum of $8300 dollars and it also encourages foreign investments particularly in luxury brand retailing wherein investment per outlet should more or equal to $2,50,000 dollars. Coming to the scenario in Thailand, the retail sector is regulated by scrutiny of investment applications and only allows less than 49% of FDI within the minimum total investment of fewer than 100 million Baht in selected businesses. Vietnam has a very restrictive regime in the retail sector as the investment application goes through the scrutiny of every sector.

In addition to, the rising competitiveness in ASEAN in attracting FDI there lies a few challenges which are (i)For foreign investors to look at the potential of ASEAN as a whole need a uniform policy that allows free inter-state movement between ASEAN countries, (ii) It is very important to note that there are high inequalities of economic development between ASEAN countries which need to be brought down by bringing uniformity among the ASEAN members.  When the aforesaid challenges are resolved by ASEAN it would undoubtedly outperform several nations, topping the list of attracting foreign investment across the globe.

Challenges of current FDI policy in India focusing SBPRT

Although there has been a tremendous shift of foreign investment policy since 1991 from restricting investors to opening markets in India. Foreign investments in SBPRT have also recorded modifications. Although, there are some challenges which are needed to be looked upon by the Government, which are as follows:

1. Ineffective enforcement on the state level 

The FDI in India also gives authority to the respective state governments as well as union territories to further place conditions and regulations pertaining to the foreign investment regime. This is because trade and commerce are encompassed under the state list giving state governments unparalleled authority for imposition of restrictive conditions. The repercussion is a non-uniform regulatory regime that negatively affects the potential foreign investors.

2. Contradictions with international treaties and agreement

It is important to acknowledge the commitment of India to comply with several international agreements signed for the purpose of free trade like a General Agreement on Trade and Services (GATS). Bilateral investment safeguard agreements, commitment to the free trade-economic cooperation treaties relating to opening the market between the member nations entered by India. However, restrictions in SBPRT and MBRT of sourcing raw materials for manufacturing of products minimum up to 30% only from Indian MSMEs and local businesses contravenes certain obligations under the international treaties.

3. Frequent modifications in FDI policy

There is no basic set of regulations governing the retail sector particularly in the sphere of foreign investments. The legislature vests with the very authority to strike any statute or policy without being obliged to consider the stakes of the foreign investors in India. This challenge affects as there are a multiplicity of investment opportunities to the foreign entity which leave India due to such changes in regime on account of non-compliance which can affect the economic development of the country in an adverse manner.  Therefore, there is a need for stability as well as certainty.

4. Overlay of investment regime and issue of multiple authorities in the foreign investment framework

There are different authorities such as DIPP and FIPB as well as state authorities governing the permission of foreign investments in the retail sector in India. Especially in SBPRT and application is scrutinized by DIPP as well as FIPB for getting approval for direct investments beyond 51 per cent. This is particularly problematic as it complicates the process as well as makes it lengthy for complying with regulations and expectations of multiple authorities.

Conclusion and recommendations

In sum total, the climate of foreign investments in the Indian retail sector is favourable to potential foreign investors as it takes into account their facilitation as well as safeguarding the local companies which aim to stimulate economic development in India. 

FDI has different regulations for different industries in the Indian economy. This modest attempt of research in analyzing the foreign investment regime in SBPRT in India and comparing it with ASEAN points out several inferences as follows: (i) the FDI policy has changed tremendously in favour of foreign investors in SBPRT as 100% investment is allowed through the government route. Some prominent foreign investments in the SBPRT sector IKEA a Swedish furniture retailer applying to invest up to 10,500 crore rupees, Promod, Paraverse England a footwear brand, Brooks Brothers and Decathlon are recent foreign entities whose proposal was GOI via FPIB among 63 others. (ii) The earlier restriction on where only the owner of a brand can make foreign investments in SBPRT is now expanded to any single individual who can be owner, licensee or franchisee. (iii) foreign investment policy has also safeguarded the development of local MSMEs,  the village craftsman and artisans via mandating sourcing and procurement of raw material of SBPRT and MBRT of minimum value of 30, per cent of the products domestically wherein the direct investment crosses the limit of 51%. 

The comparative analysis of foreign direct investment policy pertaining to the retail sector in ASEAN countries gives a broader perspective by understanding their potential of attracting more FDI intra-state cooperation as well as economic development post the opening of markets. However, on one side of the spectrum countries like Singapore and Malaysia are moving upwards in economic development by attracting more FDI than other member nations, especially the Philippines and Myanmar which require reforms in their FDI policy for making the climate favourable for the foreign investors in the retail sector. In addition, there is a requirement of uniformity of laws relating to foreign investments in ASEAN countries to attract more foreign investments for the further economic development of the member nations. The trade relation between India and ASEAN remains tied in the free trade area resulting in cooperation between two nations helping economic growth.

The research also pointed out several challenges pertaining to the FDI policy focusing on the SBPRT like the multiplicity of authorities, ineffective enforcement on State level, frequent modifications in FDI policy, overlay of investment regime, and issue of multiple authorities in the foreign investment framework which has some recommendations listed as follows:

  1. There is a need for establishing or deciding a single authority at a national level that regulates foreign investment policy pertaining to the retail sector especially SBPRT and MBRT to avoid approvals from multiple authorities.
  2. There is also a need for allowing up to 100% of investment in SBPRT via automatic route taking into account the current economic climate of recession which needs more inflows of FDI in the economy.
  3. The regulation pertaining to the domestic producer on every foreign investment and industry for achieving the greater objective of development of MSMEs and local artisans and craftsmen in India. As in the current policy, the FDI has crossed the limit of 51% in SBPRT and MBRT.
  4. Lastly, ASEAN countries have a lot of disparities between the member nations which need to be removed by adopting uniform foreign investment policies thereby facilitating inter-state movement which will increase the inflow of FDI in ASEAN by leading to the economic development of the retail sector. 


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