New FDI rules for single brand retail seen as mixed bag
For companies like Apple Inc. which were hopeful of getting a complete relaxation of sourcing norms, it is a change in the opposite direction.
Mumbai: The government has made it easier for single brand retailers to setup operations in the country with an extended window of eight years before the application of the local sourcing norms come into play. However, for companies like Apple Inc. which were hopeful of getting a complete relaxation of sourcing norms on the grounds that they are a “state-of-the-art” and “cutting-edge technology” company, it is a change in the opposite direction.
Under earlier rules for single brand retail, companies opening wholly-owned stores in India were required to comply with the local sourcing norms of 30% within five years of their first store opening. On Monday, this rule has been further tightened for entities undertaking single brand retail trading and seeking exemption from local sourcing norms will get a waiver only for three years along with a relaxed sourcing regime for five more years.
“The government appears to have tightened the sourcing norms for single brand trading in products having “state of the art” and “cutting edge” technology. While the language is not too clear, it appears that the entities engaged in trading of such products would now need to comply with the sourcing norms over a period of 8 years (3 plus 5) as against an earlier norm where the government had the option to completely waiving the sourcing norms for such entities. If this is indeed the case, this move would adversely impact the fate of several companies especially in the technology space, that were hoping for a complete waiver on the grounds that the products proposed to be sold involved state of the art technology,” said Kalpesh Maroo, partner, BMR & Associates LLP.
Yet, on the whole, the perception is that government has made it easier for retailers setting up under 100% single brand policy. “The assumption is that the earlier window of five years from the date of opening the first store is now being extended to eight years for all retailers coming in under single brand to comply with local sourcing,” said Anil Talreja, partner, Deloitte Haskins and Sells.
The government also notified the 100% FDI under approval route for trading, including through e-commerce for food products manufactured or produced in India which it had proposed during the Budget. As such, companies manufacturing food products in India will be allowed to set up retail stores and even have e-commerce operations in respect to the items manufactured in India. This could lead to companies like Wal-Mart Inc which have cash and carry wholesale operations and are ruled by the multi-brand retail policy to consider food retail in India. “FDI in food retail is a very progressive step,” Krish Iyer, president and chief executive, Walmart India had told PTI in April. He had said the company will study policy guidelines and take decisions appropriately.
To be sure, the current FDI policy in retail allows multi-brand retailers to invest only 51% while opening retail stores in the country. However, 100% FDI is allowed in wholesale cash and carry retail. So far, the multi-brand retail policy has failed to generate enthusiasm among overseas retailers, with just British supermarket chain Tesco Plc. entering the country in a 50:50 joint venture with Trent Hypermarket Ltd, part of Tata Group. In fact, French retailers Auchan Group and Carrefour S.A. abandoned their multi-brand plans in 2013 due to the tough regulatory environment.
Meanwhile, the relaxation of the single brand retail policy in September 2012 has seen furniture retailer Ikea, fashion retailer Hennes and Mauritz AB (H&M), sportswear retailer Adidas AG and Swiss watch retailer Swatch SA to come to India through this route. While Ikea’s first store is expected to open next year, H&M has already opened six stores since October last year and will open an equal number before the year-end.
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First Published:21 Jun 2016, 05:01 AM IST
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