DIPP comes out with Group Company definition

NEW DELHI: In a bid to check foreign whole-sellers from selling more than 25 per cent of goods to affiliated firms, DIPP today came out with the definition of 'group company' similar to the one in the foreign trade policy.

The Department of Industrial Policy and Promotion said in a press note that "two or more enterprises, which directly or indirectly are in a position to exercise 26 per cent or more voting rights in the other enterprise, and can appoint more than 50 per cent of members of board of directors in the other enterprise", will be termed as group company.

DIPP said the decision will take immediate effect. US retail giant Walmart and its Indian cash-and-carry partner Bharti Enterprises had sought clarity from DIPP after questions were raised over the amount of sales of their joint venture - 50:50 Bharti-Walmart - to Bharti Retail, a wholly- owned arm of the Indian firm.

As per a rule introduced in 2010, the DIPP had restricted cash-and-carry companies from selling more than 25 per cent goods to 'group companies' in an attempt to prevent foreign firms from indirectly selling in domestic multi-brand retail outlets as FDI was not permitted in the segment then.

The rule had said trade should not exceed 25 per cent of the total turnover of the wholesale venture and the wholesale made to the group firms should be for their internal use only.

The government has, however, relaxed FDI norms in multi-brand retail and has allowed 51 per cent foreign investment in the segment.