More business in store for single-brand retail

The government has once again proposed to ease local sourcing norms in the single-brand retail sector as part of its efforts to attract higher inflows of foreign direct investment (FDI).

Analysts believe this will encourage more large global retail and technology players to look at entering India.

Under the existing policy, 30 per cent local sourcing is mandatory for single-brand retail companies, when the FDI exceeds 51 per cent. The Union Budget on Friday proposed to further relax FDI norms in the sector to attract higher foreign investment.

An analyst pointed out that this was also being done as the government’s previous attempts to ease sourcing norms had not met with much success.

For instance, last year, single-brand retail players were permitted to offset incremental sourcing of goods from India for global operations against the mandatory sourcing norms.

However, this had little impact in attracting fresh FDI in the sector.

Paresh Parekh, Partner and National Tax Leader, Consumer Products and Retail, EY India, said, “There was a lot of reluctance on the part of the existing foreign JV players in the sector to increase FDI beyond 51 per cent to avoid coping with the sourcing norms and also reluctance shown by new foreign brands to enter the sector owing to the sourcing norms. So the proposal to relax the local sourcing conditions should have a positive impact on the existing players and the sector.”

As more details are awaited, it remains to be seen whether the step will encourage players with “cutting-edge technology” such as Apple to set up their own stores in India.

Ease of doing business

Anil Talreja, Partner, Deloitte India, said, “While the exact details are awaited, the intent of the government to pro-actively look at relaxing sourcing norms for single-brand retail players will make international players re-evaluate their strategies to tap the large Indian consumption potential.” He said players who were earlier undecided on account of difficulties in meeting sourcing norms may now need to take quick decisions on investing in India.

Existing players who have entered the country under the single brand retail trade policy said the relaxation would lead to ease of doing business.

Peter Betzel, CEO IKEA India, said, “IKEA is committed to increasing local sourcing from India. While we await the fine print to assess the impact on us, we believe any positive move will encourage FDI and grow the industry even more in India.”

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