The government has said that the 30% norm for sourcing from local small and medium enterprises is not just for the local market only, and anything sourced from such enterprises by a single brand retailer for its global operations will also be considered as fulfilling the rules. Besides, the government may also be waiving off the sourcing condition for retailers of high-precision items such as sports watches, who may genuinely not get high quality inputs from SMEs in the country. This clarification by the government is likely to make single brand retail more attractive.
The government increased FDI limit in single brand retail from 51% to 100% earlier this year, but with a rider that at least 30% of the company’s sourcing has to be done from the local SME sector. Initially, the local sourcing condition was met with skepticism from a number of multinational retail companies who said that it was impractical.
Several companies have now started carrying out formal assessments of whether there’s a possibility for them to source locally before they take a decision on either making fresh investments in single-brand retail or increasing their stake in their existing single brand retail ventures in the country.
While UK-based shoe company Pavers England has already made an application for licence for single brand retail in India, DIPP secretary Saurabh Chandra said last week that there were other proposals too in the pipeline. While the explanation on what constitutes sourcing is a shot in the arm for prospective investors, foreign investors are also seeking more flexibility on the definition of SMEs currently defined as any enterprise with a maximum investment of $1 million in plant and machinery.
The minister was, however,less optimistic on the issue of allowing FDI in multi-brand retail. "We are having consultations on the issue. Only states can give trade licence or one to set up a shop or establishment. We have to remain engaged on this issue,” the minister said. The government’s plans of allowing 51% FDI in multibrand retail was shot down by a number of states, including West Bengal.
The government increased FDI limit in single brand retail from 51% to 100% earlier this year, but with a rider that at least 30% of the company’s sourcing has to be done from the local SME sector. Initially, the local sourcing condition was met with skepticism from a number of multinational retail companies who said that it was impractical.
Several companies have now started carrying out formal assessments of whether there’s a possibility for them to source locally before they take a decision on either making fresh investments in single-brand retail or increasing their stake in their existing single brand retail ventures in the country.
While UK-based shoe company Pavers England has already made an application for licence for single brand retail in India, DIPP secretary Saurabh Chandra said last week that there were other proposals too in the pipeline. While the explanation on what constitutes sourcing is a shot in the arm for prospective investors, foreign investors are also seeking more flexibility on the definition of SMEs currently defined as any enterprise with a maximum investment of $1 million in plant and machinery.
The minister was, however,less optimistic on the issue of allowing FDI in multi-brand retail. "We are having consultations on the issue. Only states can give trade licence or one to set up a shop or establishment. We have to remain engaged on this issue,” the minister said. The government’s plans of allowing 51% FDI in multibrand retail was shot down by a number of states, including West Bengal.
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