Plugging policy loopholes, the government has spelt out the rules for FDI-funded wholesale or cash-and-carry trading ventures, restricting their merchandise sale to registered retailers and not directly to consumers.
The Department of Industrial Policy and Promotion (DIPP), the nodal agency for formulating and administering foreign direct investment policies, has for the first time defined wholesale activities.
The rules have been incorporated in the consolidated FDI Policy document so that foreign retail stores, allowed in wholesale activities, do not subvert the guidelines which do not allow overseas investments in retail.
Under the policy, 100-per cent FDI is permitted in wholesale trading and 51 per cent in single-brand retail, while foreign investment is not allowed in multi-brand retail.
Several multi-nationals like Walmart, Metro and Tesco, have set up cash-and-carry stores in India building the back- end supply logistics.
In the absence of a clear definition of the wholesale activity, these stores could have sold goods to bulk consumers.
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According to new comprehensive guidelines, whether a 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 sale of goods to retailers, industrial, commercial, other professional business users or to other wholesalers, but not for personal consumption.
Excepting for sales to the government, wholesale trading could be done with business entities holding VAT registration, sales tax, service tax and trade licences.
It would also include resale, processing and thereafter sale, bulk imports with export/ex-bonded warehouse business sales and B2B e-commerce.