Press Information Bureau

Government of India

Ministry of Commerce & Industry

18-September-2012 17:01 IST

FDI Policy on Multi Brand Retail Trading and India’s Commitments under International Investment Agreements

• Broadly two types of commitments are undertaken in an international investment agreement i.e. market access and national treatment.

• FDI policy is amenable to both market access and national treatment issues

 Market access in the context of FDI policy implies the ability of a foreign investor to enter the investment space in India and the limitations thereon. For example, a foreign multi brand retail investor can invest in India only after the government decision is notified. Thus, access to the Indian market for multi brand retail is blocked for foreign investment till then.

 National treatment implies that a domestic and foreign investor are treated equally. The FDI policy itself envisages unequal treatment in a range of sectors which is embodied in the sectoral caps, security restrictions, etc. This means, for example, that while an Indian investor can invest 100% in multi brand retail trading in India, a foreign investor will still be allowed to invest only 51%. Further, all the attendant conditions of the policy have only to be complied with by the foreign investor and not an Indian investor setting up a multi brand store without foreign investment.

• BIPA: The BIPA is a post-establishment investment agreement. This implies that once an investor enters the country, that investor must be treated the same as a domestic investor unless the limitations to national treatment are clearly spelt out at the pre-establishment stage. The FDI policy is a pre-establishment instrument and therefore not covered by BIPA.

• CECA/CEPA: In these agreements, India has taken both pre and post establishment commitments. In the pre-establishment commitments, the FDI policy has been bound which means that any rollback would require consultations with the partner country and could entail quid pro quo in terms of concessions in some other area. Within the FDI policy, commitments may be taken only in some specified sectors (positive listing). Since FDI in multi brand retail trading was not allowed when these agreements were negotiated, none of these agreements is affected by the recently approved policy. Moreover, state and local regulations are not a part of the commitments.

• Multilateral/WTO: Multi brand retail trading is classified as a service and therefore covered by the General Agreement on Trade in Services (GATS). India has not undertaken any commitments in this area under the GATS. As such, there is no impact of the policy on our commitments under the WTO. Investment is not a part of WTO disciplines except through Mode 3 under GATS.

• The recently approved policy on FDI in multi brand retail trading provides, inter-alia, that it would be the prerogative of the states to allow a multi brand store. The policy nowhere provides that it is applicable only to certain states. The policy itself is a national policy and can potentially be applicable to all the states that are desirous of implementing it. The local and state-level regulations which govern shops and establishments are the prerogative of the respective state governments. The policy explicitly acknowledges this position. The opening up of FDI in multi brand retail trading is a liberalization measure and remains so with all the conditionalities, given the fact that currently FDI in multi brand retail trading is not allowed at all in India. The decision does not violate any commitments/obligations arising out of India's international agreements.

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DS/GK

Market access limits for foreign multi-brand retail persist, while states may permit stores under the national FDI policy. The FDI policy conditions entry of foreign multi brand retail investors through market access restrictions and preserves limited national treatment by imposing ownership caps and specific compliance requirements on foreign investors. BIPAs are treated as post establishment instruments and do not cover pre establishment FDI limits unless pre listed; CECAs/CEPAs bind pre establishment commitments only where positive listings exist; GATS commitments do not cover multi brand retail. The national policy permits state governments discretion to implement local shop and establishment regulations.