The govt to weigh both the options with an eye on attracting more foreign investment
India could altogether drop the local sourcing requirement for foreign investment in single-brand retailing as it eyes increased investment from companies such as Apple. “Very clearly it has been stated that for the single brand retail trading local sourcing requirement is somewhat of an anachronistic kind of arrangement… It is not required to be there,” finance secretary SubhashGarg. “That’s what the intent, or that is what the signalling is.” Responding to a question on whether the clause would be dropped or diluted, Garg said both the approaches will need to be examined. “There can be a proposal for entirely removing the local sourcing requirement from the single brand retail,” he said. “There might also be liberalising it in some way where the life of these companies becomes much easier.”
India allows 100% foreign investment in single-brand retail under the automatic route but needs the investor to source 30% of the value of goods sold from within the country. Finance minister NirmalaSitharaman, in her budget speech on Friday, had announced that the local sourcing norms will be eased for FDI in single brand retail. As per the existing policy, the 30% local sourcing procurement requirement has to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning April 1 of the year of opening of the first store. Thereafter, it needs to be met on an annual basis. The policy allows investors to set off incremental sourcing from India for global operations against this 30% requirement for local outlets for the first five years. An official at the Department for Promotion of Industry and Internal Trade (DPIIT) said there are year on year restrictions that need to be simplified. “The annual requirement clause can be relaxed,”. Last year, the department had allowed single-brand retail players to offset incremental sourcing of goods from India for global operations against the mandatory sourcing norms.
“The year-on-year clause is counterproductive and a deterrent for large exporters,” an expert on FDI matters said. “Once a company is meeting the sourcing requirement, it is immaterial if it sells locally or exports.” FDI equity inflows into India declined for first time in six years in 2018-19, by 1% to $44.4 billion from $44.8 billion in the previous fiscal.
