India eases local sourcing norms for single brand retail

The recent Budget has eased local sourcing norms for foreign direct investment for single brand retail. This could benefit most global apparel retail brands like H&M, M&S, Zara etc. While there was a recent relaxation provided to offset the sourcing from India for global operations against the local sourcing, the same didn't have the expected impact to boost FDI in the sector. There was a lot of reluctance by existing foreign JV players in the sector to increase FDI beyond 51 per cent to avoid coping with the sourcing norms and also reluctance shown by new foreign brands to enter the sector owing to the sourcing norms. Currently, the FDI policy on single-brand retail trade provides for a 30 per cent local sourcing preferably from micro, small and medium enterprises, village and cottage industries, artisans and craftsmen where the FDI exceeds 51 per cent.

While there were expectations around relaxing the stringent conditions in multi-brand retail sector as well, this proposal should give an initial boost to the retail sector while laying a road map for further relaxations. India’s FDI inflows in 2018-19 marked a six per cent growth over the previous year. The gains will be further consolidated in order to make India a more attractive FDI destination. Local sourcing norms will be eased for FDI in single-brand retail sector.