Government unlikely to ease sourcing rules for foreign retailers; mulls 100% FDI in single-brand retail through auto route: Report

By: | Published: March 10, 2017 11:50 AM

The Narendra Modi government is unlikely to ease sourcing rules for foreign retailers, however it is mulling to ease FDI rules in media and the broadcasting sector, sources told Reuters.

urrently, although FDI up to 100% is permitted in single-brand retailing, such investments beyond 49% require the approval of the Foreign Investment Promotion Board (FIPB).

The Narendra Modi government is unlikely to ease sourcing rules for foreign retailers, however it is mulling to ease FDI rules in media and the broadcasting sector, sources told Reuters. The sources further revealed that the government is also considering 100% FDI in single brand retail via automatic route. According to a recent report in The Financial Express, The ministries of finance and commerce and industry have initiated discussions on allowing 100% FDI in single-brand retail through the automatic route, said one of the sources. Currently, although FDI up to 100% is permitted in single-brand retailing, such investments beyond 49% require the approval of the Foreign Investment Promotion Board (FIPB). In multi-brand retailing, FDI is allowed up to 51% with FIPB approval.

“The effort is to put as many sectors as possible under the automatic route,” said the official. “We have noticed that sectors under the automatic approval route have attracted the FDI the most. In fact, well over 90% of the total FDI currently comes through the automatic route,” the official said. However, the requirement that foreign retailers have to source 30% of materials locally to set up their own outlets is unlikely to be scrapped, ostensibly because of the concerns that any such move could hurt the government’s Make-in-India programme. “We haven’t yet come to that point (scrapping the local sourcing rule),” he added.

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In October last year, US trade representative Michael Froman had said India needed to further open sectors, including retail, to improve the overall business environment. According to the Retailers Association of India, the country’s retail sector is likely to grow at a CAGR of 13% to reach a size of $950 billion by 2018.

Inflows of FDI (in equity) into India rose 29% in 2015-16 from a year earlier to $40 billion. Such inflows rose 30% in the first half of this fiscal from the previous year. In the trading space, FDI inflows rose almost 41% in the last fiscal from a year earlier.

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The Narendra Modi government has already announced two big rounds of relaxations in the FDI regime, first in November 2015 and then in June last year, easing rules in over a dozen sectors ranging from real estate, pharmaceuticals, food marketing, aviation, defence to e-commerce and banking.

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