Single brand retail might expect relaxation in local sourcing rule

Single brand retail might expect relaxation in local sourcing ruleThe government is considering a relaxation in mandatory 30% local sourcing norm for foreign direct investment (FDI) in single-brand retail in a bid to draw companies such as Apple looking to set up their own stores in India. 

Depending on the amount of investment, the retailer can get up to 10 years over which it can scale up sourcing to the required level. The Department for Promotion of Investment and Internal Trade (DPIIT) has issued a cabinet note proposing this. Currently, such an adjustment is available only for the first five years. The suggestion will be sent to the cabinet for approval after seeking inputs from the relevant ministries and departments. 

The FDI policy allows 100% foreign investment in single-brand retail under the automatic route but requires the investor to source 30% of the value of goods sold from India. This sourcing requirement has to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning April 1 of the year of opening of the first store. Thereafter, it needs to be met on an annual basis. 

The policy also allows investors to set off incremental sourcing from India for its global operations against this 30% requirement for local outlets. However, this is available only for the first five years and subsequently 30% sourcing has to be entirely for India operations. 

Under the proposal, retailers that invest up to $100 million in the sector will get six years to meet the norm. Those that invest over $200 million will get eight years while those putting in over $300 million will have 10 years. “We have tweaked some norms to help the single brand retailers,” said an official aware of the proposed details. 

The department wants the investor to set up their first physical store in two years as the condition was not being meaningfully implemented. 

ONLINE OPTION 

The proposal also seeks to allow singlebrand retail firms to open online stores before setting up brick-and-mortar shops if they invest more than $200 million, said another official. They will be need to open physical stores within two years of such a launch. 

“It is more of a clarification. A dignified amount of time needs to be given to set up stores because the extant condition can be construed that an investor can open a small store only to comply with conditions. Also, there was no stopping the investor from selling on other online marketplaces,” said the person. “So, in that context, it is not a relaxation.” However, the first official wasn’t aware of any proposal related to online sales. 

 

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