Franchising In India

The Rupee - the Indian currency is going to be made fully convertible on both capital as well as revenue account. This means foreign franchisers can freely invest in India - the fastest growing economy and also repatriate at their will. But certain conditions do apply.

India is the worlds largest democracy and has the biggest market for any consumer good. Indian laws on property and taxes are in `pari materiaī to the  laws of say Singapore or Great Britain where franchising is big business. Franchising in India - which is a Commonwealth nation - is beginning to assume importance in India. Hotel franchises like DAY'S INN, The Sheraton, Ramada Inn, Best Western, Quality Inn are well established in India. Walt Disney has been successful in having its label in all sorts of goods for children. Fast food chains like Taco Bell, My Kinda Town, McDonalds, Domino Pizza, Kentucky Fried Chicken, Pizza Corner are well established brands. Pepsi and Coke have their own net work. Good House Keeping, Aptech Computer Training etc. are well known service franchises. Blue Dart, United Parcel Service are notable courier service companies. Unilever PLC is starting a launderette chain in India this year.

Franchisers interested in India may wish to note the following basic norms for setting up franchises in India:

Permission of the Central Bank in India - The Reserve Bank of India is required to bring in Capital and set up a base for carrying on such activities.
The standard method of setting base in India would be to depute a foreign national to India as an advisor or make him take up employment in the Indian partner.This cuts a lot of red tape as there would no burden of remitting foreign exchange to the franchiserīs country and the concerned foreign national may earn his pay in Indian currency and utilize it in India itself. All expenses of the concerned foreign national will also be borne by the Indian partner in local currency.

A foreign franchiser not wishing to make a direct investment but merely intending to render technical assistance for a recurring franchise fees will have to secure the Reserve Bank of India's approval. The Master Franchise agreement has got to be approved by the apex bank which regulates the inflow and outflow of foreign investments.

A foreign franchiser can generally own upto 51% of the share capital leaving the rest to the Indian side. There is an automatic approval mechanism to enable such investments. Since the apex bank's permission is required to repatriate profits, this matter should be clearly incorporated in the Master Franchise agreement. Foreign technicians can visit India to train Indian partners for an initial period of three months. This can be extended to a further period of three months. Indian visas can be obtained from the Indian Embassy and Consulates in the franchiserīs country. Remuneration to such foreign technicians has also to be incorporated in the Master Franchise Agreement so that it can be approved up front. All payments made to foreign technicians will bear an additional cess of 5% under the Indian Research & Development Act.

As a general rule profits, dividends, interest or other income pursuant to and in relation to a franchise can be repatriated only subject to payment of Indian taxes and under approval of Central bank - The Reserve Bank of India. The Indian partner normally acquires land and properties for the franchise outlets. A foreign franchiser may,subject to conditions, acquire property in India or buy out an existing Indian franchise.