The government’s recent initiative of toning down the rules and regulations of the foreign direct investment (FDI) concerning the single-brand retail sector will empower companies such as Ikea, H&M, Uniqlo and Puma to broaden their horizon in India. Unwinding the sourcing norms for these set-ups will allow them to fortify the Make in India initiative.
Commerce minister Piyush Goyal issued a statement where he spoke about the changes made in the present FDI policy. The present policy instructs that a single-brand retail company that has more than 51% FDI in India has to source 30% locally of the total value of goods sold in the country, the changed norms will allow it to include exports as well.
“We are delighted. H&M has been sourcing from India since the last 30 years for its international markets. We see this supporting the ease of doing business in India and driving in larger investments
from global companies,” stated Janne Einola, country manager for H&M India. Ikea, H&M and other such companies has already begun sourcing from India prior to their setting up of domestic operations. However, under the prevailing rules, they were not given credits for everything they had been snapping up from the Indian entities. Earlier, if a company sources goods of worth $100 million before entering the single-brand retail segment and it went up to $110 million in the first year, only the incremental purchases of $10 million were counted towards fulfilling the sourcing requirement whereas under the new rule, the company will be allowed to treat the entire $110 million as the value of goods sourced from India. To which Abhishek Ganguly, Puma India MD says, “I see this as a big opportunity for apparel companies, where Indian factories have strong capabilities.”
Adhering to this new policy, a company which is part of Japanese retailer Uniqlo’s global operations, can now source from India and it will be added to the sourcing obligation of the apparel maker, making compliance easier. Even the goods sourced from a contract manufacturer, in which a company such as Uniqlo or Apple invest, will be counted for the purpose.
“Government’s efforts to enhance ease of doing business for single-brand retailers are encouraging,” says Peter Betzel, CEO Ikea India.
Furthermore, the government has allowed these single brand retailers to open online stores before setting up physical stores in the country. “This will help new entrants,” states Pinakiranjan Mishra, partner and leader, consumer products and retail, EY India.
To evaluate the impact and consequences of the decision taken by the Cabinet, trader’s body, the Confederation of All India Traders (CAIT) called for an meeting on Thursday.