As the focus of a potential importer is to penetrate the
market via offline and offline retail channels of growth, I have provided
below a brief write up the various models of doing so.
If the product categories includes food, socks and shoes, medical
devices and medical related products and plans to launch its own brands of food
through private labelling through both
online and physical platforms, thereby making the sales 3 fold, retail, online and wholesale markets. You
must comply with the FDI Policy of 2016.
India’s Foreign Direct Investment Policy
of 2016 (FDI Policy), allows a
non-resident entity to invest in India, subject to the FDI Policy and except in
those sectors/activities which are prohibited. Further the FDI policy provides
for eligible investee entities in which Foreign Direct Investment (FDI) is permitted, which are as below:
1.
FDI
in Partnership/ Proprietary Concerns;
2.
FDI
in trusts; and
3.
FDI
in Limited Liability Partnerships (LLP).
FDI in resident entities other than
those mentioned above is not permitted. Please note that the foreign investment
in sectors/activities under automatic route, wherein the approval of the Foreign
Investment Promotion Board (FIPB) is
not required, will be subject to government approval where the ownership and or
control is not vested in a resident entity.
Proposals involving total foreign equity
inflow of and below Rs.5000 crore, would be considered by the Minister of
Finance, proposals involving total foreign equity inflow over and above INR
5000 crore would be considered by the Cabinet Committee on Economic Affairs (CCEA).
Models
of trading
1.
Wholesale and
retail Manufacturer: 100% Foreign investment in manufacturing is
permitted under the automatic route, however the products have to be
manufactured in India, to be eligible to be sold through wholesale and or
retail, including through e-commerce without Government approval. As a result
for to be able to sell products as a
wholesale and or retail manufacturer, including through e-commerce, the
products must be manufactured in India.[1]
2.
Trading:
a.
Wholesale
Trading:
Also known as cash and carry trading. The model’s end customers are commercial
in nature. i.e. B2B (Business to Business) model of business. FDI is permitted
under the automatic route upto 100%. Wholesale trading would include resale,
processing and thereafter sale, bulk imports with ex-port/ex-bonded warehouse
business sales and B2B e-Commerce. The requisite licenses/registration/
permits, as specified under the relevant Acts/Regulations/Rules/Orders of the
State Government/Government Body/Government Authority/Local Self-Government
Body under that State Government should be obtained.
Therefore
to be able to set up whole trade trading or cash and carry trading, the end
customers must be other businesses i.e. only B2B model allowed.
b.
E-Commerce
activities:
The buying and selling of goods and services including digital products over
digital & electronic network i,e, e-commerce, the entity can engage only in
Business to Business (B2B) e-commerce and not in Business to Consumer (B2C)
e-commerce.
In
order to be able to set up e-commerce activities, the end customers must be
other businesses i.e. only B2B model allowed. One cannot set up an
e-commerce platform i.e. online website to sell directly to customers.
i.
Inventory based
model of e-commerce: Where inventory of goods and services is owned by
e-commerce entity and is sold to the consumers directly, 100 % FDI under the
automatic route is not allowed. Therefore if one is planning on setting up
websites to sell directly to customers, and owns the goods so sold, the same
model of business is not permitted, and may be subject to approval on a
case to case basis.
ii.
Marketplace
based model of e-commerce: Where an information technology
platform is provided by an e-commerce entity on a digital & electronic
network to act as a facilitator between buyer and seller, 100% FDI is
permitted. If one plans to set up a website where one acts as an
intermediary between buyers and sellers, the same is permitted.
E-commerce
marketplace may provide support services to sellers in respect of warehousing,
logistics, order fulfillment, call centre, payment collection and other
services. E-commerce entity providing a marketplace will not exercise
ownership over the inventory i.e. goods purported to be sold. Such an
ownership over the inventory will render the business into inventory based
model.
c.
Single Brand
Product Retail trading (SBRT): 100% FDI is allowed in the SBRT model,
however if FDI is over 49% government approval is required, FDI below 49% is
under the automatic route. ) Single Brand’ product-retail trading would cover
only products sold of a ‘Single Brand’. One can undertake ‘single brand’
product retail trading in the country for one specific brand, directly or
through a legally tenable agreement with the brand owner for undertaking single
brand product retail trading. The onus for ensuring compliance with this
condition will rest with the Indian entity carrying out single brand product
retail trading in India. If one wishes to invest beyond 51%, sourcing of 30%
of the value of goods purchased, will be done from India.
One is permitted
to enter the e-commerce space if single brand retail trading by setting up
brick and mortar stores is undertaken.
d.
Multi Brand
Product Retail trading (MBRT): FDI upto 51% is permitted under the
government approval route. Further the Fresh agricultural produce, including
fruits, vegetables, flowers, grains, pulses, fresh poultry, fishery and meat
products, may be unbranded. However the minimum amount to be brought in, as
FDI, by the foreign investor, would be US $ 100 million.
One can set up
shop wherein more than one brand of product is sold, however at
least 30% of the value of procurement of manufactured/processed products
purchased shall be sourced from Indian micro, small and medium industries.
Please note that
Retail trading, in any form, by means of e-commerce, would not be permissible,
for companies with FDI, engaged in the activity of multi-brand retail trading, i.e. If one
is not allowed to enter the e-commerce space for B2C, if it sets up shop under the MBRT model.
3.
Pharmaceuticals: 100% FDI is
permitted in Brownfield sector (investor investing in an existing plant.) and
investment beyond 74% under the government route and in Greenfield sectors
(investment in new plants. It is establishing new production capacity by an
investor or company) under the automatic route.
However
please note that if one is also manufacturing medical devices, FDI up to
100%, under the automatic route is permitted for the same and is not
covered under the Brownfield and Greenfield sectors.
Laws
on import/ manufacture of products
1.
Food Laws: The regulatory
authority in India on food is the Food safety and Standards Authority of India
(FSSAI). Recently the FSSAI
published the draft guidelines for operation of e-commerce Food Business
Operators (FBO’s)[2]
i.e. guidelines regulating the e-commerce activity where inventory of food
products and food services is owned by the FBO and is sold to the customer
directly.
An
FBO is any undertaking, whether private or public, for profit or not, carrying
out any of the activities related to any stage of manufacture, processing,
packaging, storage, transportation, distribution of food, imports and including
food services, sale of food or food ingredients.
Comments
are awaited on the draft regulations, however an and when they come into force one
will need to comply with the registration and licensing requirements, if one
plans on selling food products and or services to customers directly via the
online platform, whether utilizing the inventory or market based models.
Further
all food articles will have to comply with the licensing, registration, food
standards, labeling and additive regulations as issued by the FSSAI under
various legislations. Applicable food laws are as below:
a.
Food
Safety and Standards Act, 2006;
b.
Food
Safety and Standards Rules, 2011;
c.
Food
Safety and Standards (Licensing and Registration of Food Businesses)
Regulation, 2011;
d.
Food
Safety and Standards (Packaging and Labelling) Regulation, 2011; and
e.
Food
Safety and Standards (Food Product Standards and Food Additives) Regulation,
2011.
In addition to the above if one will have
to abide by the Food Safety and Standards (Food or Health Supplements,
Nutraceuticals, Foods for Special Dietary Uses, Foods for Special Medical
purpose, Functional Foods, and Novel Food) Regulations, 2015 if the food
products fall within the head of “Foods for Special Dietary Uses (FSDU) (other than infants, and those to
be taken under medical advice)”.
2.
Legal Metrology
Act, 2009 (LM Act): The LM Act and its corresponding rules will apply
as one will be importing the products. The Act and rules mandates that every
importer and manufacturer has to be registered under the Act before undertaking
any activity.
3.
Bureau of Indian
Standards Act, 2016 (BIS): The BIS provides standards for
articles which means any substance, artificial or natural, or partly artificial
or partly natural, whether raw or partly or wholly processed or manufactured or
handmade within India or imported into India. Some standard have been made
mandatory while others are voluntary, however they provide the minimal
standards to conform to. Further if the BIS mandates certain standards and
marking of any article which applied to DS, it may have to obtain requisite
licence or certificate of conformity.
Accordingly
the BIS will also have to be examined to determine the applicability on ones
products.
4.
Drugs and
Cosmetics Act, 1940 (DC Act): The DC Act will also have to be
analysed to ascertain whether or not the products fall within the definition of
a drug, as the regulation and tax rates will defer according to the
categorization.
[1]
Press Note No. 5 (2016 Series), published on June 24, 2016.
[2]
Published by FSSAI vide notice dated September 20, 2016
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