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Global apparel brands welcome new Indian FDI rules on single brand retail

"The government has relaxed FDI rules for foreign single brand retailers. It has also permitted 100 per cent FDI under the automatic route in contract manufacturing and coal mining and a 26 per cent FDI in digital media. Also, the government has expanded the definition of mandatory 30 per cent domestic sourcing norm for single brand retailers. This will enable global retailers to start their online operations, waiving previous condition of setting up a mandatory brick-and-mortar store."

 

Global apparel brands welcome new Indian FDI rules on single brand retailThe government has relaxed FDI rules for foreign single brand retailers. It has also permitted 100 per cent FDI under the automatic route in contract manufacturing and coal mining and a 26 per cent FDI in digital media. Also, the government has expanded the definition of mandatory 30 per cent domestic sourcing norm for single brand retailers. This will enable global retailers to start their online operations, waiving previous condition of setting up a mandatory brick-and-mortar store. It will also allow companies such as IKEA, H&M, Uniqlo and Puma to expand their footprint in India and bolster the ‘Make in India’ initiative.

While the present policy mandates that a single-brand retail company, that has more than 51 per cent FDI in India, has to source 30 per cent of its raw materials locally, the changed norms will allow it to include exports as well.

New sourcing norms to benefit apparel companies

Companies such as Ikea and H&M began sourcing from India much before they set up domestic operations. ButGlobal apparel brands welcome new Indian FDI rules on single brand under existing rules, they did not get credit for what they had been buying from Indian entities. So, if a company was sourcing goods worth $100 million before entering the single-brand retail segment and it went up to $110 million in the first year, only the incremental purchases of $10 million were counted towards fulfilling the sourcing requirement. The new rules will allow the company to treat the entire $110 million as the value of goods sourced from India. This will prove to be big opportunity for apparel companies, where Indian factories have strong capabilities.

The government has also decided to include global sourcing by the single brand retailers for adjusting their 30 per cent mandatory local sourcing norm. Terming this move encouraging, Swedish furniture giant Ikea hopes it would enhance the ease of doing business in India.

Online stores to attract overseas investments

As per the new rules, single brand retailers can open online stores before setting up physical stores in the country. Experts say, this move will help new entrants. Swedish fashion retailer Hennes & Mauritz (H&M) has welcomed the government's decision, saying it will help attract investment from global companies and would allow single brand retailers to meet local sourcing norms besides giving them time to build their brick-and-mortar presence in parallel.

 
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