Foreign brands hail easing in local sourcing norms

Major single-brand retailers, including IKEA and H&M, Friday hailed the government's budget proposal to ease local sourcing norms for foreign direct investment in the sector.

Industry experts opined that the budget proposal would help attract more foreign players to invest in India.

Under the current norms, 100 per cent FDI is permitted in the single-brand retail trade with a rider of 30 per cent mandatory local sourcing to promote micro, small & medium enterprises (MSMEs).

Finance Minister Nirmala Sitharaman in her budget speech Friday announced that the mandatory local sourcing norms would be eased for FDI to make India an attractive destination.

Swedish home furnishings major IKEA, which opened its first store in India in August 2018, welcomed the proposed relaxation in local sourcing norms for single-brand retailers.

"The Indian Government's priority to bring about ease of doing business for companies is encouraging. IKEA is committed to increasing local sourcing from India," IKEA India CEO Peter Betzel said.

IKEA has "ambitious and optimistic plans to work with affordability and offer everyday low prices for the many people in India. While we await the exact fine print to assess the impact on us, we believe any positive move will encourage FDI and grow the industry even more in India", he added.

H&M India Country Manager Janne Einola also hailed the proposal to ease local sourcing norms. "While we don't see the details of the proposal currently, we are happy to see the intent of the government to ease sourcing norms for FDI in single-brand retail to drive ease of doing business in India," Einola said.

EY India Partner and National Tax Leader, Consumer Products and Retail Paresh Parekh said the budget proposal to relax local sourcing conditions in the sector should have a big positive impact for the existing players and also to the sector owing to the new FDI which should now enter the sector.

"While there was a recent relaxation provided to offset the sourcing from India for global operations against the local sourcing, the same didn't have the expected impact to boost FDI in the sector. There was a lot of reluctance by 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," Parekh said.

Currently, the FDI policy on single-brand retail trade (SBRT) provides for a 30 per cent local sourcing preferably from MSMEs, village and cottage industries, artisans and craftsmen where the FDI exceeds 51 per cent.

Parekh said while there were expectations around relaxing the stringent conditions in the multi-brand retail sector as well, this proposal should give an initial boost to the retail sector while laying a road map for further relaxations.

"India's FDI inflows in 2018-19 remained strong at USD 64.375 billion marking a 6 per cent growth over the previous year. I propose to further consolidate the gains in order to make India a more attractive FDI destination...Local sourcing norms will be eased for FDI in single-brand retail sector," Sitharaman said while presenting the Budget for 2019-20.

However, Sitharaman, did not spell out the changes that the government proposes to make to ease FDI norms in single-brand retail trade.