Cabinet gives nod for 100% FDI in single-brand retail
The Union cabinet has given its green signal for allowing 100% foreign direct investment (FDI) in single-brand retail without prior government approval. It also liberalized local sourcing norms that could benefit companies like Swedish furniture retailer IKEA and fashion house Hennes and Mauritz AB (H&M). The landmark decision smoothens the way for new entrants to start retail operations in the country.
Although 100% FDI is already permitted in single-brand retail, only up to 49% was allowed through the so-called automatic route and investment and above that it also needed government approval.
By easing the local sourcing rule, foreign single-brand retailers are now not required to meet the 30% target for local sourcing by their Indian units for five years. So far they have been required to source locally 30% of the value of goods purchased for their Indian business initially as an average of five years; later they were required to meet the requirement on a yearly basis.
IKEA and H&M are among the potential beneficiaries of the new sourcing norms.
The government did not define the ‘state-of-the-art’ and ‘cutting-edge technology’ it has previously said would be required of high-tech companies to open single-brand stores. The current FDI policy says that local sourcing norms will not apply for up to three years after the opening of the first store for single-brand retailers of products having ‘state-of-art’ and ‘cutting-edge’ technologies and where local sourcing is not possible.
It has however has rejected the application of Apple Inc. to open stores stating that its technology is not ‘cutting edge’.
The government has in august set up a committee under department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek to clearly define these two terms.
Concerns regarding local sourcing and FDI in multi-brand retail remain, retail experts say, even while FDI relaxation will remove entry barriers for foreign single brand retail companies. Large global retailers would be seriously considering entering India or accelerating their entry plans because of the new sourcing rule.
Tags: Cabinet, 100% FDI, single-brand retail, single brand retail, union cabinet, 100% foreign direct investment, ikea, fashion house hennes, mauritz ab, department of industrial policy and promotion, dipp, multi brand details, varindia
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