Govt relaxes FDI norms for single brand retail

After losing elections in the state of Bihar, Prime Minister Narendra Modi-led NDA government has directed its attention to development agenda. It allowed single-brand retailers with foreign investment to sell online, paving way for companies such as Swedish furniture retailer Ikea and fashion retailer Hennes and Mauritz (H&M), who wish to launch their own ecommerce platforms in the country.

Another big development was changes in the 30 percent mandatory sourcing norms under single brand FDI. While companies will now get more time to meet local sourcing requirements. The rule that mandates single-brand retailers to locally procure 30 percent of their goods sold in India over a span of five years remains but, the new policy will allow the retailer to meet the norm from the time it opens the first store. Until now, the five-year deadline started from the date of receipt of foreign direct investment (FDI).

The government has also said it would consider waiving sourcing requirements “in certain high technology segments” where “it is not possible for [a] retail entity to comply with the sourcing norms.” So far, single-brand retailers with FDI were shut out of online trading in any form. Foreign companies such as sportswear retailer Adidas and Swiss watch maker Swatch have already received permission to set up fully-owned stores in India, while others like Nike are awaiting approval. The latest move will allow the companies to sell online through their own online platforms. Ikea, which plans to open 25 stores in the country at an investment of Rs10,500 crores will be at advantage since at a recent meeting with Modi, Ikea’s Global Chief Peter Agnefjall had said the company needed more time to procure 30 percent goods locally.

The circular also clarified the FDI norms for the Indian manufacturers. An Indian manufacturer will be permitted to sell its own branded products in any manner i.e. wholesale and retail, including through e-commerce platforms but Indian brands should be owned and controlled by resident Indian citizens and/or companies which are owned and controlled by resident Indian citizens.