Government notifies its decision to allow 100% FDI in single-brand retail
NEW DELHI: The government has formally notified its decision to allow 100% foreign direct investment in single-brand retail, but its decision to stick to a key local sourcing clause has ensured the reaction the reform has elicited is more cautious than celebratory.
The notification, which signals the government's intent to push ahead with reforms and brightens hopes it will resurrect plans to allow 51% foreign ownership in multi-brand retail soon, will finally allow global brands such as Marks & Spencer, Burberry and Louis Vuitton to convert their 51%-owned Indian operations into fully-owned ones.
But the guidelines do not have the promised exemption in the clause that makes 30% local sourcing mandatory and some firms, especially luxury goods makers, say this could be a major deterrent in scaling up operations.
Commerce and Industry Minister Anand Sharma had held out hope last year of a likely exemption in the local sourcing clause.
But the final rules, framed by the Department of Industrial Policy and Promotion (DIPP) and notified on Tuesday, state that single-brand retailers setting up ventures with more than 51% stake will have to source 'at least 30% of the value of products sold from Indian small industries/village and cottage industries, artisans and craftsmen'.
"Brands will find it difficult to justify sourcing of 30% worth of goods sold from Indian SMEs," said Abhay Gupta, executive director at Blues Clothing that represents brands such as Versace, Corneliani, Cadini and John Smedley in India.
Small industries are defined as those with investments of $1 million ( 5.2 crore) in plant and machinery, a limit experts say is too low to achieve quality levels desired by big brands. Others said the sourcing clause would dilute their brand appeal and even compromise intellectual property rights because they would be forced to work with multiple small vendors.
However, government officials said these concerns were overblown. "No such issues cropped up during our stakeholder meetings. Let these brands enter the country first, and if they have some genuine problems, we will tackle them then," said DIPP Secretary PK Chaudhery.
The 51% limit on foreign direct investment had discouraged many global brands from investing in India. FDI inflows into single-brand retail during the past three-and-a-half years stood at a paltry 196 crore.
Courtesy: The Economic Times
The notification, which signals the government's intent to push ahead with reforms and brightens hopes it will resurrect plans to allow 51% foreign ownership in multi-brand retail soon, will finally allow global brands such as Marks & Spencer, Burberry and Louis Vuitton to convert their 51%-owned Indian operations into fully-owned ones.
But the guidelines do not have the promised exemption in the clause that makes 30% local sourcing mandatory and some firms, especially luxury goods makers, say this could be a major deterrent in scaling up operations.
Commerce and Industry Minister Anand Sharma had held out hope last year of a likely exemption in the local sourcing clause.
But the final rules, framed by the Department of Industrial Policy and Promotion (DIPP) and notified on Tuesday, state that single-brand retailers setting up ventures with more than 51% stake will have to source 'at least 30% of the value of products sold from Indian small industries/village and cottage industries, artisans and craftsmen'.
"Brands will find it difficult to justify sourcing of 30% worth of goods sold from Indian SMEs," said Abhay Gupta, executive director at Blues Clothing that represents brands such as Versace, Corneliani, Cadini and John Smedley in India.
Small industries are defined as those with investments of $1 million ( 5.2 crore) in plant and machinery, a limit experts say is too low to achieve quality levels desired by big brands. Others said the sourcing clause would dilute their brand appeal and even compromise intellectual property rights because they would be forced to work with multiple small vendors.
However, government officials said these concerns were overblown. "No such issues cropped up during our stakeholder meetings. Let these brands enter the country first, and if they have some genuine problems, we will tackle them then," said DIPP Secretary PK Chaudhery.
The 51% limit on foreign direct investment had discouraged many global brands from investing in India. FDI inflows into single-brand retail during the past three-and-a-half years stood at a paltry 196 crore.
Courtesy: The Economic Times
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