Sourcing relief for single-brand retail2 min read . Updated: 29 Aug 2019, 12:50 AM IST
- Norms allow firms to open online shops before setting up a physical store
- Swedish furniture retailer IKEA welcomed the move
NEW DELHI/MUMBAI : India on Wednesday relaxed local sourcing norms for single-brand retailers with foreign direct investment (FDI) and allowed them to sell online even before setting up physical stores, in a move expected to benefit some of the world’s largest retailers including IKEA, H&M and Uniqlo.
Currently, for single-brand retailers with over 51% FDI, the policy requires that 30% of value of goods has to be procured from India as part of the local sourcing requirement. This can be met as an average during the first five years, and thereafter annually towards its Indian operations. On Wednesday, the cabinet decided that all procurements made from India by a single-brand retailer for that brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported.
Further, the government has decided that sourcing of goods from India for global operations can be done directly by the entity undertaking single-brand retail or its group companies (resident or non-resident), or indirectly by them through a third party.
Currently, the policy provides that only a part of the global sourcing shall be counted towards local sourcing requirement, which is over and above the previous year’s value. “It has been now decided that entire sourcing from India for global operations shall be considered towards local sourcing requirement," the government clarified. The move is seen as a big positive, as it expands the scope of sourcing operations for retailers.
Moreover, brands now applying for FDI in single-brand retail will also be allowed to commence e-commerce operations even before they set up physical stores, subject to the condition that the entity opens brick and mortar stores within two years from date of start of online retail.
Some of the world’s largest companies have always sourced from India, especially in apparel, sports, and home goods sectors.
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," the company said.
Janne Einola, country manager for H&M India, which operates a 100% FDI single brand retail business in India, said that the company has been sourcing from India since the last 30 years for its international markets, and “it’s great to see global sourcing is now part of the 30% local sourcing norms."
In single-brand retail, the local sourcing norm had been a concern for retailers.
“With this being eased, it may make a big difference in terms of bringing investments in the sector. In single brand retail, an investor would be someone who is strategically looking to be in the country. These norms will help attract those investments,"said Archana Tewary, partner at law firm J Sagar Associates.