New norms will draw international brands to India

Meenakshi Verma Ambwani New Delhi | Updated on January 10, 2018

Relaxation in sourcing norms had been a long-standing demand of some of the international retailers

Tweaking sourcing rules will give MNCs the leeway to develop vendors, say experts

The government’s move to allow 100 per cent FDI in single brand retail through the automatic route is expected to encourage more international brands to set up base in India and help Indian consumers get better access to international products, say analysts.

At the same time, analysts believe that the tweaks in sourcing norms will give international retailers the much-needed flexibility and more time to develop vendors in the country and establish a supply chain for their Indian operations.

Dhanraj Bhagat, Partner, Grant Thornton India, said, “This positive change will foster ease of doing business in India. It will encourage international brands to look at India seriously as they will now find it easier to set up operations in the country. In addition, the tweaks in the sourcing norms will make it viable for them to comply with the regulations.”

Akila Agarwal, Partner, Shardul Amarchand Mangaldas, said: “Earlier, the local sourcing norm was to be met in five years from commencement of business on an average basis and annually thereafter. Now, it is applicable only after five years from commencement.

“For the initial five years, the norm could be satisfied by incremental local sourcing for global operations of the investee company or its affiliates. This means increased purchases from India over and above the previous year will be adjusted against the 30 per cent local sourcing condition.”

However, it is unclear if this determination will be done at the end of five years on an average basis or each year from the date of commencement, she added.

Goldie Dhama, Partner-Regulatory, PwC India, added that this will provide single brand retail trading companies the flexibility and time to align their retail and sourcing business.

Relaxation in the mandatory sourcing norms had been the long-standing demand of some of the international retailers that have already set up shop in India, and have been sourcing from India for many years for their international operations.

Janne Einola, Country Manager at H&M India, said: “We are happy to hear about the India sourcing requirement being offset towards H&M’s global sourcing from India. While it is in the right direction, we look forward to the same relaxation for the period beyond the initial five years as well, which works towards ease of doing business in India.”

Rajat Wahi, Partner, Deloitte India, said that the mandatory sourcing norms were a big obstacle in attracting single brand retailers and the tweaks introduced by the government will bring in a big change. He said that the move will not only attract additional foreign capital into the country, but will also provide an impetus to the retail industry growth, at a time when organised retail has been already seeing strong growth over the last 12 months.

However, Arvind Singhal, Chairman, Technopak, believes that unless FDI norms for multi-brand retail are liberalised, the country is unlikely to see a huge impact in the quantum of foreign investment inflow or for exports.

Published on January 10, 2018

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