The government's decision to further relax foreign direct investment norms for single-brand retailers as well as allow 100 per cent foreign investment in contract manufacturing is expected to give a big fillip to Prime Minister Narendra Modi's 'Make In India' push, while also further enhancing ease of doing business.
The Cabinet on Wednesday announced a slew of reforms. It has been decided to allow 100 per cent FDI in contract manufacturing under the automatic route. FDI in single-brand retail had already been allowed; now, the definition of mandatory 30 per cent local sourcing has been expanded. Up until now, if a single-brand foreign retailer made FDI of over 51 per cent, it was mandatory to procure 30 per cent of the value of the goods locally.
Now, all the procurement made by the single-brand retailing entity from India, whether the goods procured are sold in India or exported, shall be counted towards local sourcing.
Furthermore, the single-brand retailers applying under the FDI policy will be able to open online stores as well, before they set up brick-and-mortar stores.
The Retailers Association of India welcomed the various decisions taken, saying it had written to the government earlier to ease FDI norms for single-brand retail on the sourcing front.
“It has significant capability to create ease of doing business for single-brand retailers in the country. It ensures that manufacturing in the country is given a boost,” said Kumar Rajagopalan, CEO of Retailers Association of India.
He further feels that the export capability from India will “dramatically increase” when these retailers start buying for their global requirements.
The opening up of FDI will benefit companies like Apple. The maker of the iconic iPhone has marquee retail stores globally. However, in India, it has faced local sourcing roadblocks in the past and therefore hasn’t been able to open stores here. Instead, it has had to rely on authorised re-sellers to sell Apple products in India.
Apple already has contract manufacturing in India for its iPhones. The easing of local sourcing norms will be a big boost to Apple’s plans to open flagship stores in the country. The move could also help companies like Swedish furniture giant IKEA, which has been sourcing products for its global operations from India for several decades, but only opened its first store in the country last year.
Furthermore, the 100 per cent FDI via automatic route for contract manufacturing will attract global players looking to set up alternate manufacturing hubs in the country, said Harsha Razdan, partner at KPMG in India.
China is a huge manufacturing base for many global companies. With an escalating trade war, the US and China have slapped import duties against each other's goods. In this backdrop, opening up of contract manufacturing in India could help attract some of the manufacturing here. “The changes to FDI norms could well reposition India on the global map,” said Razdan.
Also, allowing single-brand retailers to start online sales in India would give them time to set up a physical network in parallel, Razdan added.
The Confederation of All India Traders (CAIT), which has been critical of opening up FDI in retail in the past, has taken a cautious stance on the latest announcements. Praveen Khandelwal, secretary general, said that CAIT would hold a conference of trade leaders of all states to discuss the issue and the impact on domestic trade.
“The relaxation needs a careful study to understand its future impact on retail trade being conducted by 7 crore traders in the country,” he said.
