The impact of relaxation in FDI rules in single-brand retail would be more pronounced in the apparel, luxury goods, home decor, footwear, and electronics segments, says Crisil Ratings
New Delhi: In the light of the government’s decision to allow 100% foreign direct investment (FDI) in single-brand retail under the automatic route, the share of organised retail in India is expected to rise to 10% by 2020, up from 7% in 2016-17, said a statement from the ratings agency Crisil.
Before the change in rules, Crisil had estimated the market share of organized retailers to grow to 9% of the overall industry, by 2020. The impact of relaxation in rules would be more pronounced in the apparel, luxury goods, home decor, footwear, and electronics segments, the statement added.
“Global single-brand retailers facing growth headwinds in their key geographies will now be more than keen to peg tent in India and those already present could step up investments. The previous sourcing norms were a bottleneck to scaling up of operations," said Anuj Sethi, senior director at Crisil Ratings.
Last week, the union cabinet allowed 100% FDI in single-brand retail without prior government approval and liberalized local sourcing norms. Until now, only up to 49% FDI was allowed through the automatic route and investment above that needed government approval.
The cabinet also eased the local sourcing rules for foreign single-brand retailers; such entities are not required to meet the 30% target for local sourcing by their Indian units for five years if they are already doing so for their global operations. So far, single-brand retailers were required to source locally 30% of the value of goods purchased for their Indian business initially as an average of five years; later they were required to meet the requirement on a yearly basis.
The relaxation of rules will remove the entry barriers for foreign single-brand retailers altogether and also help the new companies stabilize their sourcing base.
“All this will mean increase in competition for domestic organized brick and mortar retailers. However, more foreign retailers vending their ware would also lead to sharper focus on, and improvements in, supply chain efficiencies which will benefit the sector over the medium term," said Amit Bhave, director at Crisil Ratings.