Home-grown brands and private labels such as Fabindia and UrbanLadder will now be able to easily elevate foreign funds for their ventures with the government allowing 100% foreign direct investment (FDI) in contract manufacturing. These companies depend on third-party outsourcing and this move comes as a pain-reliever for them.
Before, contract manufacturing was a debatable issue but the move to cover them under the overarching norms on manufacturing has brought them at an equal level with manufactures.
"While the fine print will be available in the press note when it comes out, the logical extension of the norms means that the move will benefit such private labels from being single-brand retailers to manufacturers,"expressed Ajay Bahl, founding partner of law firm AZB & Partners, who advises private equity investors and homegrown brands.
India permits up to 100% FDI under the automatic route in singlebrand retail.
Around 112 brands have obtained government approval for single brand retail trade activities since 2006 till March 29, 2018. The single-brand retail sector has received total FDI equity of $1.6 billion so far.
"With yesterday's (Wednesday’s) announcement, the government has scored a hat trick, which will be good for ‘Make in India’, employ in India, and invest in India," said Willaim Bissell, vice chairman at Fabindia, adding that the move is a positive for all Indian brands.
Ashish Goel, cofounder and CEO of Urban Ladder, termed it a positive move. "We do get a lot of stuff manufactured in India and this can be helpful for us. We are keen to support Indian manufacturing and plan to manufacture furniture ourselves as well," he addressed.
Akash Gupt, partner at PwC, said the much hoped for transparency will help the growth of private labels. "Homegrown brands that rely significantly on third-party manufacturing will be treated akin to manufacturers and hence can raise more foreign capital to grow their retail footprint. Besides foreign investments, more tangible benefits to the country should come by way of increase in manufacturing activity," he said.
While the broadening of FDI norms in single-brand retail will benefit global brands, experts said contract manufacturing will help Indian labels.
"This will help create scale for such brands and they would be able to raise funds," Bahl added.
Stimulating manufacturing and making the sector internationally competitive have been the twin goals of Make in India, underpinned by a strategy of lowering costs of doing business.