Firms might get more time to comply with 30% sourcing

The clause on mandatory sourcing from India, part of the single-brand retail policy, might be tweaked again. About three years after 100 per cent foreign direct investment (FDI) was permitted in single-brand retail by the United Progressive Alliance (UPA) government, there are indications that the sector might get more time to implement the contentious sourcing norm.

Currently, a company with more than 51 per cent FDI and seeking to operate under a single-brand banner has to start complying with the 30 per cent sourcing norm within five years of the entity getting incorporated in the country.

The sector wants the sourcing clause to kick in five years after a company sets up its first store. It is learnt the government is considering relaxing the rulebook in a bid to implement "ease of doing business".

If the clause is changed, major foreign brands such as Ikea, H&M, Adidas, Nike and even Apple would benefit. Ikea, the biggest FDI proposal so far in single-brand retail, is expected to set up its first store around 2017, while H&M made its debut on October 2. Adidas' and Nike's proposals are pending with the government. Apple, which currently has franchisee outlets, is keen on opening fully-owned stores.

So, a company like Ikea, which plans to invest about Rs 10,000 crore in India, will have to source 30 per cent of its total sales from India by 2022 if the rule is changed. According to the current norm, it would have to start complying from 2018, as the firm was incorporated as a single-brand player in 2013.

Companies are looking to have good business in India before mandatory sourcing kicks in, it is learnt. Earlier, the UPA government had changed the sourcing rules under pressure from the sector.

POLICY MATTERS

• Sector might get more time for the contentious sourcing norm
• Currently, a firm with more than 51 % FDI and seeking to operate under single-brand banner has to start complying with the 30% sourcing norm
• The sector wants the sourcing clause to kick in five years after a company sets up its first store in India
• The government is considering relaxing the rulebook in a bid to implement "ease of doing business"
• If the clause is changed, major foreign brands such as Ikea, H&M, Adidas, Nike and even Apple would benefit
• Ikea, the biggest FDI proposal so far in single-brand retail, is expected to set up its store in 2017, while H&M made its debut on October 2

The policy mandated 30 per cent sourcing from Indian small and medium enterprises. Later, it was changed to mandatory sourcing from India, preferably from small and medium enterprises. Another change that may be in the offing is allowing foreign brands to set up single-brand retail stores even if they have franchisee operations.