By Miyake Junya

Budget 2019-20: India is a massive consumer market and rightly tapping this market means a direct benefit for the brand and an increase in domestic capital. Investing in India has become easy after the FDI policy set in 2014. However, there is a huge opportunity pool that is untapped due to impermissible policy. Owing to the election of the new governance, Union budget 2019 is highly anticipated by the multinational brands.

Presently, under the automatic route in single-brand retail, the FDI policy allows 100 per cent foreign investment, however, necessitates the investor to source 30 per cent of the value of goods sold from India. This regulation has to be met in the first instance, as an average of five years’ total value of the goods purchased in the first financial year since the launch and then annually.

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Sourcing Regulations

To ensure products of great quality, the raw materials are carefully selected and the manufacturing of finished products is designed in a particular way. The raw materials procured from a variety of places sometimes differ due to certain regional elements. This leads to increased processing and manufacturing cost for the brand and may sometimes result in lower quality.

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This year’s union budget must address this challenge and try to reduce the implication of 30 per cent sourcing regulation or increase the average of five years to some more years. This will allow the brands to explore the right vendors who will be able to deliver the required results at correct prices while accelerating business growth in India.

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Smooth FDI

The current FDI policy does not permit retailing of food items in India unless locally sourced. This policy refrains the brands from introducing a range of food items that are branded exclusively and co-branding isn’t a feasible or the most preferred route for single- brand retail.

Before declaring this budget, it is essential for the government to understand that to maintain smooth FDI operations like other countries, it should also have comparable FDI policy. International retailers run a specific business model and it is difficult to meet the conditions imposed on FDI in retail.

Waving the green flag for the sale of food items will increase the overall FDI growth in India. This can be channelized by the government through taxation and customs policies. 

Reduce Tax for Franchise Model

It is challenging for an international brand to enter the Indian market directly due to multiple restrictions from the FDI policy. This results in brands opting for a franchise model even after FDI allowance. However, sometimes this is not the most profitable route for brand owners.

In expectations from the upcoming budget, the government should reduce heavy taxation for franchise model brands as this generates business opportunities for Indians that eventually leads to economic development.

(Miyake Junya is the cofounder and chief designer at Japanese low-cost retailer Miniso. Views expressed are the author’s own.)