Finance Minister Nirmala Sitharaman on Friday proposed relaxation of local sourcing norms in Foreign Direct Investment (FDI) for single-brand retail trading, which is expected to significantly benefit multinational companies operating or planning to begin operations of retail stores with items sold under a single brand. These include US technology major Apple, Swedish firms Ikea and H&M, among others. Union Budget 2019 Highlights: From startups to Space programme While Sitharaman said in her Budget speech that the local sourcing norms for single-brand retail will be relaxed, specifics of the proposal were not detailed. The Department of Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry is the nodal body for implementing the proposal. Also Read: Here’s how India Inc reacted to Budget 2019 The prevalent laws allow 100 per cent FDI in single-brand retail trading under automatic route but has a rider that mandates the firm concerned to source 30 per cent of its goods from local sources, preferably from medium, small and micro enterprises, artisans, cottage industries, etc. The sourcing requirement has to be met, in the first instance, as an average of five years’ total value of goods purchased, starting April 1 of the year of opening of the first store. After that, it needs to be met on an annual basis. Single-brand retailers were not allowed to set off annual incremental procurement from India for their global operations against the domestic sourcing requirement after five years. Companies offering high-end technology products had expressed reluctance, suggesting that it was difficult for them to procure goods from India to meet the 30-per cent condition. Earlier this year, a proposal was floated by DPIIT to relax the norms but no decision was finalised. In 2016, Apple India had sought relaxation in the local sourcing norms to set up single-brand retail stores in India. According to that proposal, FDI-linked relaxations were proposed by the department for foreign single-brand retailers by allowing them more time to comply with this regulation. It was also proposed to permit such firms to open online stores before setting up brick-and-mortar shops if they bring in over $200 million foreign direct investment. However, such firms would have to set up brick-and-mortar shops within two years of starting online sales. “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,” H&M India country manager Janne Einola said.
