Business News/ Industry / Retail/  ‘Shein deal will not need FDI approval’

New Delhi: Chinese online fast-fashion retailer Shein won’t require foreign direct investment (FDI) approval for its partnership with Reliance Retail Ventures Ltd, considering that it will not hold equity in the new operations, government officials said on Friday. The entity will be controlled by a wholly-owned subsidiary of Reliance Retail, they added.

But, if Shein decides to invest in India, it would require clearance under press note 3, an amendment which was introduced in the FDI policy in 2020. Amid heightened Sino-India tensions, the Centre had made an amendment to prevent potentially exploitative takeovers of domestic firm by Chinese entities. The revised policy mandates approval for investments from countries that share land borders with India.

“Ownership and control of the platform will remain with the RRVL subsidiary, a 100% Indian firm. The agreement says that a Indian app which will be built by RRVL will have a wall between the domestic and global app. If in the future, investment comes from Shein India, press note 3 would be applicable," said a government official, requesting anonymity. “RRVL has only bought the licence and the platform. The agreement between the company says that the profits will be shared when this subsidiary makes profit," he added.

Mint reported that India is planning to crack down on Chinese companies trying to bypass government policies that require approval for investments from countries sharing land borders with India by forging ties with Indian shell firms to get subsidies, especially in the rapidly growing electric vehicle market. The Department for Promotion of Industry and Internal Trade is keeping a close watch on all Chinese automobile manufacturers having ties with suspected Indian proxy partners. However, the entities do not have strategic plans to build capabilities in India.

On data security related concerns, government official defended the agreement stating that the platform and servers will be within India there would be no customer data transfer outside India.

“Localization of Infrastructure and Platform data are aimed to ensure that the collaboration with Shein will always be compliant with applicable Indian laws and strategic interest of the country," the official said.

At present, 93% of Shein’s sourcing is from China but the partnership with RRVL as per company’s projection could result in 25% sourcing to shift to India.

“This will create a potential export opportunity of approximately 50,000 crore from India, even if only 25% of the existing global demand of Shein is sourced from India," the official said.

India’s textile exports are under pressure amid a demand slowdown in the western countries as exports of readymade garments (RMG) dipped as much as 23.10% to $1,210.66 million in April 2023.

Meanwhile, exports of cotton yarn, fabrics, made-ups, and handloom products declined by 23.42 per cent to $887.89 million in April 2023 from $1,159.49 million in the comparable period in the previous fiscal.

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Updated: 20 May 2023, 09:51 PM IST
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