Export clause eased in sourcing norms for single-brand retail FDI
2 min read 28 Aug 2019, 08:05 PM ISTCabinet allows online retailing under single-brand retail; relaxes rule of mandatory brick-and-mortar storeCabinet expands definition of mandatory 30% domestic sourcing norm
PremiumNew Delhi: The government on Wednesday further relaxed FDI in single-brand retail trade (SBRT) for companies looking to invest and open retail stores in India.
Commerce minister Piyush Goyal announced several changes to the FDI policy that is likely to benefit some of the world’s largest retailers such as IKEA, H&M and Uniqlo, among others. It has even allowed single brand retailers applying under the FDI policy to open online stores before setting up physical stores in India.
Currently, the FDI policy provides that 30% of the value of goods has to be procured from India if the SBRT entity has FDI more than 51%. Further, as regards the local sourcing requirement, the same can be met as an average during the first five years, and thereafter annually towards its India operations.
The government announced on Wednesday that all procurement made from India by the SBRT entity for that single-brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported, the PIB said in its update on today’s Union Cabinet meeting.
Further, the current cap of considering exports for five years is proposed to be removed. This will allow companies to now include not just locally sold goods but also exports as part of its sourcing.
“The extant policy provides that as regards the local sourcing requirement, incremental sourcing for global operations by the non-resident entities undertaking single-brand retail trading, either directly or through their group companies, will also be counted towards local sourcing requirement for the first five years. However, prevalent business models involve not only sourcing from India for global operations by the entity or its group companies, but also through an unrelated third party, done at the behest of the entity undertaking single-brand retail trading or its group companies. In order to cover such business practices, it has been decided that ‘sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident}, or indirectly by them through a third-party under a legally tenable agreement," PIB said in its update.
Moreover, brands now applying for FDI in single-brand retail will also be allowed to commence e-commerce operations before they set up physical stores in a clear indication that the government is closely watching how consumers in India are shifting to online modes of shopping. However, a physical store will need to be opened in the next two years.
"This creates an artificial restriction and is out of sync with current market practices. It has therefore been decided that retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail," the PIB release said.
Companies such as IKEA and H&M have been sourcing products for their global operations for years; even before they had plans to open stores in India.
Swedish furniture retailer IKEA welcomed the move. “IKEA India welcomes the relaxation of local sourcing norms for single-brand retailers. Government of India’s efforts to enhance ease of doing business for single-brand retailers is encouraging. IKEA has been sourcing from India for more than 30 years. We are committed to increase local sourcing from India. We have ambitious and optimistic plans to work with affordability and offer everyday low prices for the many people in India," the company said.
