Union Budget 2019 India: The announcement assumes significance as several foreign entities had raised issues related to mandatory local souring norms from India.
Union Budget 2019 India: The government Friday proposed to further relax foreign direct investment (FDI) norms in the single brand retail sector with a view to attract more overseas investment. Finance Minister Nirmala Sitharaman in her Budget Speech said “local sourcing norms will be eased for FDI in single brand retail sector”.
The announcement assumes significance as several foreign entities had raised issues related to mandatory local souring norms from India. Gokul Chaudhri, partner, Deloitte India, said, “Foreign investment flows eased after a lull of several years, both for portfolio investors and strategic investors. Gradual increase in FDI flow will definitely give a much-needed impetus to the economy and boost consumption.”
High-end technology companies had expressed reluctance that it was difficult for them to procure goods from India to meet the 30 per cent condition. Earlier this year, a proposal was mooted by the Department for Promotion of Industry and Internal Trade to ease the norms. But no decision was taken on that.
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According to that proposal, FDI-linked relaxations were proposed by the department for foreign single brand retailers by allowing them more time to comply with this regulation. It was proposed to permit such firms to open online stores before setting up brick-and-mortar shops if they bring in over USD 200 million foreign direct investment. But, such firms would have to set up brick-and-mortar shops within two years of starting online sales.
Currently, online sale by a single-brand retail player is allowed only after opening of physical outlet. It was also suggested that retail traders may be allowed to adjust the incremental sourcing of goods from India for global operations during the initial 6-10 years, from the current five years (beginning April 1 of the year of the opening of first store), against the mandatory sourcing requirement of 30 per cent of purchases from India. These relaxations were also subject to quantum of FDI one brings in India.
It was in February 2006 when the government allowed 51 per cent FDI in the segment. In January 2018, 100 per cent FDI was permitted for foreign players in single-brand retail trade to set up own shops in India without government approval. That time, the government had relaxed mandatory local sourcing requirement of 30 per cent by stating that a foreign retailer would be able to get credit from incremental rise in sourcing for its global operations from India towards the mandatory 30 per cent local sourcing requirement for its business in the country In 2016, Apple India had sought relaxation in the local sourcing norms to set up single brand retail stores in India. During April 2000 and March 2019, the retail trading sector has attracted USD 1.65 billion.