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    Is FDI in Cash & Carry Wholesale Business is Allowed ?

    Posted By : KAMAL / Published on : 10-Jun-2022 07:34 AM / View : 136 / Comment : 1

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    Dear Professionals,

    What are the rules & Provisions made under FEMA for FDI in Cash & Carry Wholesale trading business in India

    Read more on : allowed business wholesale carry cash

    • The term 'wholesale' used in Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Second Amendment) Regulations, 2003, is to be understood in the sense in which it is defined in Indian Statutes and the rules framed thereunder, relating to trade, such as the definitions contained in the Monopolies and Restrictive Trade Practices Act, 1969, Standards of Weights and Measures (Packaged Commodities) Rules, 1977, etc. While bringing out the distinction between 'wholesaler' and 'retailer', he relied on the following.-

      ----------------------------------------------------------------------------------

      Sl.    Definition of                     Definition of                 Source
      No.   retailer/retail                  wholesaler/wholesale
          sales/retail dealer             dealer, cash and carry, etc.
      

      ----------------------------------------------------------------------------------

      1.   Section 2(p) of the          Section 2(x) of the MRTP        As per
           MRTP Act, 1969               Act, 1969 "Wholesaler" in       Monopolies and
           "Retailer" in relation to    relation to the sale of any     Restrictive Trade
           the sale of any goods,       goods, means a person who       Practices (MRTP)
           includes every person,       sells the goods, either in      Act, 1969
           other than a wholesaler,     bulk or in large quantities,
           who sells the goods to       to any person for the
           any other person, and in     purpose of resale, whether
           respect of the sale of       in bulk or in the same or
           goods by a wholesaler, to    smaller quantities
           any person, for any
           purpose other than
           resale, includes that
           wholesaler
      -----------------------------------------------------------------------------------
      2.   Rule 2(o) of Standard of     Rule 2(w) of Standards of       The Standards of
           Weights and Measures         Weights and Measures            Weights and
           (Packaged Commodities)       (Packaged Commodities)          Measures Law
           Rules, 1977 "Retail          Rules, 1977 "Wholesale          Manual
           dealer" in relation to any   dealer" in relation to any
           commodity in packaged        commodity in packaged
           form means a dealer          form means a dealer who
           who directly sells such      does not directly sell such
           packages to the              commodity to any consumer
           consumer and includes,       but distributes or sells such
           in relation to such          commodity through one or
           packages as are sold         more intermediaries.
           directly to the consumer,
           a wholesale dealer who
           makes such direct sale.
      -----------------------------------------------------------------------------------
      3.   x x x x                      x x x x                         x x x x
      -----------------------------------------------------------------------------------
      4.   "Retail package" means       "Whole package" means a         The Standards of
           a package containing         package containing.-            Weights and
           any commodity which is                                       Measures
           produced, distributed,       (i) a number of retail          (Packaged
           displayed, delivered or      packages, where such first      Commodities)
           stored for sale through      mentioned package is            Rules, 1977, Rule
           retail sales agencies or     intended for sale,              2(p) and 2(x)
           other instrumentalities      distribution or delivery to a
           for consumption by an        intermediary and is not
           individuals or a group of    intended for sale direct to a
           individuals                  single consumer;
      
                                        (ii) a commodity sold to an
                                        intermediary in bulk to
                                        enable such intermediary to
                                        sell, distribute or deliver
                                        such commodity to the
                                        consumer in smaller
                                        quantities;
      
                                        (iii) packages containing
                                        ten or more than ten retail
                                        packages provided that the
                                        retail packages are labelled
                                        as required under the rules
      -----------------------------------------------------------------------------------
      5.                                Defines "Wholesale dealer"      The Law Lexicon,
                                        as a trader who stores bags     2nd Edition, 2002
                                        and sells grain by the bulk
                                        without breaking the bags
                                        is a wholesale dealer
                                        "Wholesale dealer" is a
                                        person who keeps for
                                        wholesale to traders a
                                        commodity for the purposes
                                        of trade
      ------------------------------------------------------------
      6.   Defines "Retail" as the      Defines "wholesale" as sale     The Law Lexicon,
           sale of goods in small       in large quantities; where a    2nd Edition, 2002
           quantities to ultimate       trader sells the whole or a
           consumers                    large part of his produce
                                        direct, at fixed price to
                                        customers, that price also
                                        can be described as the
                                        "wholesale price"
      ------------------------------------------------------------
      7.   Defines "Retail sale" is                                     The Law Lexicon,
           to sell goods in small                                       2nd Edition, 2002
           parcels and not in gross
           If a person takes a
           house, or part of a
           house, either in his own
           name or in the name of
           any other person, and
           then, either personally
           or by his agent, makes
           sale of spirits by retail,
           he carries on business
           there as a retailer of
           spirits, notwithstanding
           he keeps no spirits
           there, and the spirits
           which he sells there are
           kept in and delivered
           from a store in another
           town where he carries
           on the business of a
           wine and spirit merchant
      -----------------------------------------------------------------------------------
      8.   Defines "Retail" as the      Oxford Dictionary defines       Oxford Dictionary
           sale of goods to the         "Wholesale" as the selling
           public for use or            of goods in large quantities
           consumption rather           to be retailed by others
           than for resale
      -----------------------------------------------------------------------------------
      9.   Defines "Retailer" as a      Defines "Wholesaler" as a       Oxford
           distributor that sells       distributor that sells goods    Dictionary of
           goods, or services to        in large quantities, usually    business
           consumers (compare           to other distributor.
           wholesaler). There are       Typically, a wholesaler
           broadly three categories     buys and stores large
           of retailer; multiple        quantities of several
           shops, co-operative          producers' goods and
           retailers and                breaks into the bulk
           independent retailer         deliveries to supply
                                        retailers with smaller
                                        amounts assembled and
                                        sorted to order
      -----------------------------------------------------------------------------------
      10.                               Defines "Wholesaler" as         Hyper Dictionary
                                        someone who buys large          and Wordnet (r)
                                        quantities of goods and         1.7
                                        resells to merchants rather
                                        than to the ultimate
                                        customers
      -----------------------------------------------------------------------------------
      11.                               Defines "Wholesaler" as an      Dictionary of
                                        Enterprise which makes its      purchasing and
                                        profits through buying          supply --
                                        supplies in bulk at Trade       Terminology for
                                        prices and sells and            buying and
                                        distributes them to retail      selling - H.K.
                                        business and industrial         Compton and
                                        enterprises on trade terms.     D.A. Jessop
                                        Originally a wholesaler was     (Tudor
                                        so designed as a middleman      Publication)
                                        who sold "wholesale pieces'
                                        of materials and goods to
                                        retail customer's via
                                        shop-keepers
      ------------------------------------------------------------
      12.                               Defines 'Cash and carry' as      Dictionary of
                                        buyer pays cash and             purchasing and
                                        collects, loads and carries     supply --
                                        away the goods he has           Terminology for
                                        purchased. More usually         buying and
                                        applicable to the domestic      selling -- H.K.
                                        market                          Compton and D.A.
                                                                        Jessop (Tudor
                                                                        Publication)
      ------------------------------------------------------------
      13.  Defines "Retailer" as a      Defines "Wholesaler-" as a      The Marketing
           middleman company            company serving as the          Glossary-Key
           that purchases goods         middleman between a             Terms, Concepts
           from a manufacturer or       manufacturer and a              and Applications
           wholesaler for resale to     retailer. A wholesaler buys     in
           the goods' ultimate          goods from the                  Marketing
           consumption at a profit.     manufacturer for resale (at     Management/
           Retailers usually sell       a profit) to retailers and,     Advertising/
           merchandise for              occasionally, directly to       Direct
           personal and household       consumers. There are two        Marketing/Sales
           consumption, with the        basic types of wholesalers:     Promotion/
           merchandise both stored                                      Market
           and displayed on the         (1) Full-service wholesalers    Research/Public
           store's premises             provide services such a         Relations/Sales-
                                        carrying stock, maintaining     Mark N. Clement
           Store retailers are the      sales forces, and offering      (American
           operators of department      management and credit           Management
           stores, super-               assistance to buyers; and       Association
           markets, clothing                                            Publication)
           boutiques and so on          (2) Limited service
                                        wholesaler's offer some, but
                                        not all of the services
                                        rendered by full-service
                                        wholesalers
           Non-store retailers
           include companies that
           sell through mail order
           catalogs, engage in
           direct selling (e.g.
           House-to house) or
           operate vending
           machines
      ------------------------------------------------------------
      14.  Defines "Retailing" as       Defines "Wholesaling as the     The Marketing
           the practice of making       process of buying               Glossary-Key
           goods available to           merchandise in large            Terms, Concepts
           consumers for their          quantities from a               and Applications
           personal use in a            manufacturer for resale to      in Marketing
           location or situation that   retailers or business users.    Management/
           provides a forum for         Unlike retailing,               Advertising/
           exchanging those goods.      wholesaling generally does      Direct
           There are four basic         not involve actively            Marketing/Sales
           functions of retailing:      promoting products, nor         Promotion/
           (1) Buying and storing       does it involve establishing    Market
               goods;                   the wholesale outlet in a       Research/Public
           (2) Transferring title       location convenient to or       Relations/Sales-
               of those goods;          appealing to buyers. This is    Mark N.
           (3) Providing information    because wholesaling entails     Clemente
               on the nature            selling products primarily      (American
               and uses of those        to businesses that come         Management
               items; and               from a wide geographic          Association
           (4) (In some cases)          area and that are generally     Publication)
               extending credit to      indifferent to promotional
               consumers                trappings
      ------------------------------------------------------------
      15.                               Defines "Cash and carry         The Marketing
                                        wholesaler" as a type of        Glossary-Key
                                        limited service wholesaler      Terms, Concepts
                                        selling products to             and Applications
                                        retailers, who pay for and      in Marketing
                                        pick up the product at the      Management/
                                        wholesaler's location. For      Advertising/
                                        example, a retailer drives      Direct
                                        to a cash and carry             Marketing/Sales
                                        wholesaler to buy a set         Promotion/
                                        quantity of product, paying     Market
                                        cash to the merchandise         Research/Public
                                        and taking possession of        Relations/Sales -
                                        the goods. Cash and carry       Mark N.
                                        wholesalers typically deal      Clemente
                                        in fast moving (e.g.            (American
                                        perishable) products, such      Management
                                        as baked goods                  Association
                                                                        Publication)
      ------------------------------------------------------------
      
      definitions of "wholesale trade' and 'retail trade' as given by the World Trade Organisation. The same read as follows.-

      Wholesaling consists of the sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or other wholesalers and related subordinated services.

      Retailing services consist of the sale of goods/merchandise for personal or household consumption either from a fixed location (e.g. store, kiosk etc.) or away from a fixed location and related subordinate services.

      FDI Policy: Sectors where Government Approval is required

      (as on 08.07.2016)

      S. No. Sector/Activity Relevant Para of Consolidated FDI Policy, June 2016 Cap Govt. Approval
      1. Mining and mineral separation of titanium bearing minerals and ores 5.2.3.3 100% Upto 100%
      2. Food Product Retail Trading 5.2.5 100% Upto 100%
      3. Defence 5.2.6 100% Beyond 49%
      4. Publishing/printing of scientific and technical magazines/specialty journals/ periodicals 5.2.8.3 100% Upto 100%
      5. Publication of facsimile edition of foreign newspapers 5.2.8.4 100% Upto 100%
      6. Print Media - Publishing of newspaper and periodicals dealing with news and current affairs 5.2.8.1 26% Upto 26%
      7. Print Media - Publication of Indian editions of foreign magazines dealing with news and current affairs 5.2.8.2 26% Upto 26%
      8. Air Transport Service – Scheduled, and Regional Air Transport Service, 5.2.9.2(1) 100% Beyond 49%
      9. Investment by Foreign Airlines 5.2.9.2 49% Upto 49%
      10. Satellites- establishment and operation 5.2.12 100% Upto 100%
      11. Telecom Services 5.2.14 100% Beyond 49%
      12. Trading - SBRT 5.2.15.3 100% Beyond 49%
      13. Pharma – Brownfield 5.2.27.2 100% Beyond 74%
      14. Banking- Private Sector 5.2.18 74% Beyond 49%
      15. Banking- Public Sector 5.2.19 20% Upto 20%
      16. Private Security Agencies 5.2.13 74% Beyond 49%
      17. Broadcasting Content Service
      a) FM Radio
      b) Uplinking of ‘News & Current Affairs’ TV Channels
      5.2.7.2.1
      5.2.7.2.2
      49% Upto 49%
      18. Trading – MBRT 5.2.15.4 51% Upto 51%

      FDI Policy: Sectors under Automatic Route with Conditions

      (as on 08.07.2016)

      S.No. Sector/Activity Relevant Para of Consolidated FDI Policy, June 2016 Cap
      1. Agriculture 5.2.1 100%
      2. Plantation Sector 5.2.2 100%
      3. Mining of metal and non-metal ores 5.2.3.1 100%
      4. Mining – Coal & Lignite 5.2.3.2 100%
      5. Manufacturing 5.2.5 100%
      6. Broadcasting Carriage Services ( Teleports, DTH, Cable Networks, Mobile TV, HITS) 5.2.7.1 100%
      7. Broadcasting Content Service - Up-linking of Non-‘News & Current Affairs’ TV Channels/ Down-linking of TV Channels 5.2.7.2.3 100%
      8. Airports – Greenfield 5.2.9.1 (a) 100%
      9. Airports – Brownfield 5.2.9.1 (b) 100%
      10. Air Transport Service - Non-Scheduled 5.2.9.2 (2) 100%
      11. Air Transport Service - Helicopter Services/ Seaplane Services 5.2.9.2 (3) 100%
      12. Ground Handling Services 5.2.9.3 (1) 100%
      13. Maintenance and Repair organizations; flying training institutes; and technical training institutions 5.2.9.3 (2) 100%
      14. Construction Development 5.2.10 100%
      15. Industrial Parks -new and existing 5.2.11 100%
      16. Trading – Wholesale 5.2.15.1 100%
      17. Trading – B2B E-commerce 5.2.15.2 100%
      18. Duty Free Shops 5.2.15.5 100%
      19. Railway Infrastructure* 5.2.16 100%
      20. Asset Reconstruction Companies 5.2.17 100%

      Typically, retail is understood to be the sale of goods to end users, not for resale, but for use and consumption by the purchaser. The retail transaction is at the end of the supply chain. Interestingly, courts in India have defined the term ‘retail’ as a sale for final consumption in contrast to a sale for further sale or processing (i.e. wholesale). The government of India has revised its foreign direct policy (FDI Policy) to allow foreign direct investment (FDI) in the retail sector subject to certain conditions. Some of the key changes to the whole sale sector are discussed in the paragraph below:

      The FDI Policy allows 100 % FDI in entities engaged in the business of wholesale cash and carry however, per the FDI Policy, to determine whether the transaction is wholesale or retail would depend on the type of customers to whom the sale is made and not the size and volume of sales. Wholesale trading would mean the sale of goods to retailers, industrial, commercial, other professional business users or to other wholesalers, but not for personal consumption. The FDI Policy also lists a number of ‘valid business customers’ with whom wholesale transactions can be entered into (besides the Government). These entities should have relevant tax and business registrations. It is expressly clarified that a retailer undertaking cash and carry wholesale trade cannot open retail outlets, whereby sales will be made to the customer directly unless retail trading and cash and carry wholesale trading are undertaken through separate business arms, wherein separate books of accounts for both arms of the business are duly audited by statutory auditors. The conditions of the FDI policy for wholesale/cash and carry business and for retail business have to be separately complied with by the respective business arms.Under the existing FDI Policy, wholesale deals would be permitted among companies of the same group. However, such wholesale trade to group companies taken together should not exceed 25 percent of the total turnover of the wholesale venture.

      FEMA Notification No. 20(R) deals with Foreign Direct Investment in India and Sectors permitting FDI. As per the said Notification, Trading covers,

      •Cash & Carry Wholesale Trading

      •E-Commerce

      •Single Brand Retail Trading (SBRT)

      •Multi Brand Retail Trading (MBRT)

      •Duty Free Shops 

       

      Cash & Carry Wholesale trading/Wholesale trading means,

      •Sale of goods/merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers.

       

      •Wholesale trading shall, accordingly, imply sales for the purpose of trade, business and profession, as opposed to sales for the purpose of personal consumption. 

      •The yardstick to determine whether the sale is wholesale or not would be the type of customers to whom the sale is made and not the size and volume of sales. 

      •Wholesale trading shall include resale, processing and thereafter sale, bulk imports with ex-port/ex-bonded warehouse business sales and B2B e-Commerce. 

      Sectoral Limit.Sector/Activity 

      % of Equity/ FDI Cap

      Entry Route

      Cash & Carry Wholesale Trading/Wholesale Trading (including sourcing from MSEs) 

      100%

      Automatic

       

      Read more here:

      285130913ANNEX_B_(1).pdf

      FDI-PolicyCircular-2020-29October2020_(2).pdf

      10-06-2022 / 11:48:50 AM
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