Diljeet Titus, Founder and Managing Partner, Titus & Co Advocates, has two passions – collecting vintage vehicles and making his clients’ entry into India easier. His clients include Swedish furniture retailer Ikea and apparel maker Hennes and Mauritz (H&M).

Titus, whose vintage collection exceeds 25 cars, including prized beauties that were owned by Maharajahs, a Dakota aircraft and Louis Vuitton trunks, says foreign retailers will sooner or later make their mark in India’s retail territory, but policies need to be spelt out clearly. Excerpts from his interview with Business Line .

What do you think hinders the easy entry of foreign retailers into India more – taxation or FDI guidelines?

The primary hindrance appears to be the absence of complete clarity in relation to foreign direct investment guidelines on single-brand and multi-brand retail trading policies and the manner of their interpretation, implementation and enforcement.

While there has been a greater level of clarity in relation to single-brand retail trading policy, the same cannot be said in respect to multi-brand retail, where foreign retailers continue to seek clarity on qualification of ‘back-end infrastructure’, ability to source from States opposing FDI, the ability to continue sourcing from micro, small and medium enterprises even after their growth, and chances of roll-back of the policy by a new Government.

Is there complete clarity on sourcing qualification?

While the Government has made positive efforts to clarify sourcing qualifications to serious foreign retailers, some issues remain.

One such issue in multi-brand retail is the ability of the foreign retailer to continue to include sourcing from MSMEs after these enterprises cross the prescribed threshold limit of $1 million (as fixed capital investment).

What about sourcing from States which are against FDI in retail?

There have been reported statements of senior Government officials that foreign retailers can source their products from States that are against FDI in retail.

However, no formal notification clarifying this position has been issued. While, legally, such sourcing should not be a problem, in practice, the opposing States may try to indirectly create hurdles in such a process.

Legally, what are the areas which are worrying foreign retailers?

From the FDI policy perceptive, the following areas may be of concern to foreign retailers: Ability to find qualitatively and quantitatively competent domestic suppliers, uncertainty over the manner of enforcement of domestic sourcing obligation and consequences thereof, the availability of suitable commercial spaces in major cities of India, and the level of monitoring by Government authorities and resultant hindrances.

Are MNC retailers keen to set up company-owned, company-operated ventures or will they opt for franchises?

Most foreign retailers like to retain control of their foreign operations and prefer company-owned, company-operated ventures. Considering the Indian scenario, where domestic partners can be litigious, this preference assumes greater importance. A franchise model is usually resorted to by MNCs that operate globally on a franchise model.

Many companies are coming to India from tax-saving jurisdictions such as Mauritius. Will that come in the way of Foreign Exchange Management Act?

There is no discrimination as per the ‘Azaadi Bachao Aandolan’ ((2004) 1 Comp L. 50 SC) case for investment from Mauritius. Therefore, currently investing from Mauritius does not cause any specific adverse implications under FEMA.

What is your view on the corporate structure of foreign players that have entered India?

We do not believe that tax considerations or strategy cause any specific delay for entry into India.

With regard to the corporate structure, some entities would like to follow global sourcing models, which provide that the retail entity exclusively undertake the selling part only and not the purchase, marketing and import of goods etc.

However, others would prefer the retail entity to undertake all aspects i.e. purchase, import, warehousing, wholesale and ultimately retail.

>bindu.menon@thehindu.co.in

Related Topics