October 27, 2017
FDI in single brand retail revised to 100 per cent from 51 per cent to boost interest
Fashion, food, beauty, electronics and home appliances will be main beneficiaries
30 per cent domestic sourcing norm implemented to drive Make in India initiative
The government may relax local sourcing norms to allow “state-of-art” technology
Foreign investment in single brand retail is experiencing a complete makeover. Department of Industrial Policy and Promotion’s (DIPP) FDI policy has been amended to allow 100 per cent foreign investment in single brand product retailing in India. As a result, Newby India, IKEA, H&M, Marks & Spencer’s, Oppo Mobiles, Reebok, Mountain Trail Foods, Kohler, Merlin Entertainment, Chumbak Design, Louis Vuitton, Daniel Wellington AB and Actoserba Active are some of the recently inducted brands that have been permitted to float and run wholly-owned single brand retail stores.
In the past, the policy permitted only 51 per cent FDI by single brands. However, this model did not gain much traction. Globally, single brand retailers have traditionally prefer 100 per cent ownership. Commerce Minister Suresh Prabhu had recently tweeted, “We are working on giving a boost to FDI inflow in India, speeding up approvals and creating an enabling ecosystem”.
Now that the policy has been amended from 51 per cent to 100 per cent, the total number of single brands looking towards setting up shop in India, or adding to their existing investment in India, has gone up steeply. Global brands in fashion, beauty, food, textiles and garments, accessories and electronics are motivated to strengthen their Indian footprint. Many of these brands from the US, UK, Italy and Japan have already established their India presence with Indian partners. The new policy will now permit them to buy out their Indian partners and operate individually in India’s huge consumer space.
The relaxation in foreign investment norms, however, is subject to certain riders: (1) The products are required to be sold under the same brand internationally; (2) ‘Single Brand’ retailing will only apply to products which are branded during manufacturing; (3) The foreign investor must be the owner of the brand; (4) FDI of over 51 per cent mandates at least 30 per cent of the value of the products sold must be sourced domestically, or from Indian small industries.
In certain cases, the 30 per cent domestic sourcing mandate may be eased during the first three years of operations in India. The Government may also relax the 30 percent sourcing norms altogether for entities dealing with products that have ‘state-of-the-art’ and ‘cutting-edge’ technology such as those in precision manufactured watches for which local sourcing is not possible.
The FDI policy clarifies that a committee under the chairmanship of the DIPP secretary, with representatives from the NITI Aayog (the National Institution for Transforming India), concerned administrative ministry staff and independent technical experts on the subject will examine the claims of applicants on the issue of products in the category of “state-of-art” and “cutting-edge” technology.
For some, such as a global home-interiors brand, local sourcing is nothing new. India has been a sourcing destination for more than 30 years. The company already has around 50 suppliers in India with about 45,000 employees directly involved in production. Its long-term objective is to maximise local sourcing.
In a parallel move, the DIPP is drafting guidelines that could allow foreign companies to measure the procurement they do for their global operations from India as part of their local sourcing obligations. Government of India sees many long-term benefits as the policy rolls out. In a country that enjoys food surplus, local sourcing of raw material will ring in more cash for the investor. Similarly, for brands in the textiles and garments sector, India’s age-old textile manufacturing capabilities, along with easy availability of skill and raw materials will come in as a big bonus. A leg up for employment, product quality and competitiveness, the policy opens doors to immense possibilities, all around.