DIPP clarifies: MBRT doesn’t allow trading through franchise route
The Department of Industrial Policy and Promotion has clarified the queries on FDI policy for Multi-Brand Retail Trading (MBRT) from global retailers. The clarification is as follows:
- Foreign retailers entering India’s multi-brand segment will not be allowed to franchise their stores. Front-end stores set up by MBRT entity will have to be company-owned and company operated only.
- Mandatory 30% sourcing from small industries will be counted only for sales through the front-end stores.
- Foreign retailers will have to put 50% of their investments in back-end infrastructure specifically for the chain they are setting up and any amount spent in acquiring front-end retail stores would not be counted towards back-end infrastructure
- The front-end retail stores must also be set up as an additionality, and not through acquisition of existing stores.
- Investment in the equity of the existing infrastructure company will not be treated towards the fulfillment of the conditionality of 50% investment in back-end infrastructure.
- Investment towards back-end infrastructure can be made across all States irrespective of whether FDI in MBRT is allowed in that State or not.
- The sourcing condition pertains only to manufactured and processed products. Procurement of fresh produce is not covered by this condition.
- FDI in non-FDI approved States in back-end infrastructure will be counted for the compulsory 50% investment norm provided it is an additionality.
- Entire investment in back-end infrastructure has to be an additionality, and the foreign retail chain can invest only in greenfield (new) assets and it will not be possible to acquire supply/chain/backend assets or stakes from an existing entity.
- The MBRT entity is not envisaged to undertake wholesale activity, that is, B2B. The cash & carry trading cannot be considered to be providing back-end infrastructure to the multi-brand retail store.