DIPP clarifies: MBRT doesn’t allow trading through franchise route

June 8, 2013

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.

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