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% of FDI under direct rout in Trading sector.

Uday G (Business) (254 Points)

03 February 2010

Hi,

Please tell me the percentage up to which the foreign direct investment can be made under direct rout in a private limited company in equity shares.

The company is in trading business.

Thanks in advance.

Uday.

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11 Replies

Kumar (Legal Consultant) (358 Points)
Replied 03 February 2010

In the trading business 100% FDI can be invited provided that the Investee company is not undertaking retailing.

Regards

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 03 February 2010

FDI is prohibited in Retail Trading Sector.

Trading is premitted under automatic route with FDI upto 51% provided it is primarily export activities, and the undertaking is an export house/ trading house/ super trading house/ star trading house. however, under the FIPB route:

1- 100% FDI is permitted in case of trading companies for the following activities:-

(a) exports

(b) bulk imports with export/exbonded warehouse sales

(c) other import of goods or services provided at least 75% is for procuremednt and sale of the same froup and not for third party use or onward transfer/ distribution/sales.

2-Certain other trading are also permitted, subject to provisions of EXIM Policy.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 03 February 2010

Further, please refer to Master Circular on Foreign Investment in India.

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 04 February 2010

Trading in FDI

a. Wholesale/cash& carry trading - 100% Automatic Route

b. Trading for Exports/Ex boded sale -100% Automatic Route

c. Trading of items sourced from SSI Units -100% by FIPB Aproval Route

d. Test marketing of such items for which acompany has approval formanufacture -100% by FIPB Approval Route (Subject to the condition that thetest marketing approval will befor a period of two years andinvestment in setting upmanufacturing facilities commences simultaneously with test marketing.)

e. Single Brand Product Retailing Trading -51% FIPB Subject to Press Note 3 (2006 Series) issued by DIPP

Note-

(1) "wholesale cash & carry" means sale on Business to Business (B2B) + cash & carry model basis (Metro cash & carry (I) Pvt Ltd. Vs. Union of India).

Cash & carry by its gramatical cognate "selling something gross in exchange for cash at the counter" .So credit period is not allowed neither delivery made to customer place.

B2B includes trading/selling to a business unit having a valid sale tax number for laters internal/captive consumption or resale to retailer or consumer.Hence the Trading company cannot hold a retail office/shop/godown to trade with common consumer/public of India

(2)Other than "Single Brand Retail Trading" , Retail Trading is Prohibited-

To qualify under 'Single Brand retail Trading' 3 conditions must satishfied- 1 Products to be sold should be of a single brand only. 2 The products should be sold under the same brand internationally 3 single-brand product retailing covers only products that are branded during manufacturing

However there is ambiguity & so many controversy going on legal clarity of "single brand retail Trading" since the Govt. has no specific explanation on these defination.

Please follow new updated FDI Master circular in www.rbi.org.in jointly read with Draft Press Note (2010) in www.dipp.nic.in

Kumar (Legal Consultant) (358 Points)
Replied 04 February 2010

Dear Ashis,

Just let me know whether credit can be extend to its customer by any WOS of foreign company being established to undertake 100% wholesale cash & carry business with approval of FIPB.

Thanks & Regards,

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Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 04 February 2010

Originally posted by : Kumar
	Dear Ashis, Just let me know whether credit can be extend to its customer by any WOS of foreign company being established to undertake 100% wholesale cash & carry business with approval of FIPB. Thanks & Regards,

CREDIT+CASH & CARRY

Hi Kumar

See that exact provision is not covered by Act neither DIPP/FIPB give much clarity on this issue.With ref. to Metro case study & by its gramatical cognate "cash & carry" means exclusively sale for cash at the point of sale.So no question of credit comes to matter.

However something SPECIFIC approval from regulator has a different standing unless it contradicts the original Law.But so far my knowledge & perception is concerned, the intention of legislature is not to provide any credit period to its customer as cleared in Metro case law.And the companies I hv come across in FDI they do an agreement rekconing the same clause.

You know trading is a sensitive matters in FDI.Retail market is unorganised & unstructured in India.Last year our PM has rejected the WALMART CEO request for multibrand retail trading .And I think probably to avoid backdoor retail trading practice the Govt. want to go more conservative on this specific issue wat you have raised .

However there is no problem in seeking a clarity from FIPB on this issue by wring a letter.

Kumar (Legal Consultant) (358 Points)
Replied 04 February 2010

Dear Ashis,

Thanks.

Best Regards

Ashis Mahapatra (Consultant-Tax & FEMA/FDI) (183 Points)
Replied 12 April 2010

Hi Mr Kumar !

After DIPP Circular on "Consolidated FDI guidelines 2010" its clear that a Wholesale Trading can be undertaken as per normal business practice, including extending credit facilities subject to applicable regulations.So normal credit is allowed. Chek this circular on www.dipp.nic.in

1 Like

Jyotsna Chaturvedi (Associte Company Secretary) (26 Points)
Replied 14 January 2011

Thank You Ashish for sharing on your views on this topic.

As you stated that 2010 guideline makes it clear that the WOS Of a Foreign Company trading under "Cash and Carry Wholesale"can offer credit facilities to their customers. But I did not found any specefic guidance in the circular on this. Can you just confirm where it has been mentioned.

Further can this particular Wos can import goods from its parent Co. and trade in that?