After a rough patch of sluggish economy, Indian Government is active in full swing and making solid efforts to bring India’s economic growth on track. In order to attract the retail investment, government has relaxed the FDI norms in single-brand retail by easing mandatory 30% domestic sourcing norms.
This development has come as excellent news for retail giants including IKEA and Apple. Ease in doing businesses will drive lucrative investments and could expedite the entry of many foreign retailers who have been in a wait and watch mode so far due to perceived difficulties in beating mandatory sourcing clause.
Speaking on the development, Janne Einola, Country Manager, H&M India, said,” We are delighted! H&M has been sourcing from India since the last 30 years for its international markets, it’s great to see global sourcing is now part of the 30% local sourcing norms. We see this supporting the ease of doing business in India and driving in larger investments from global companies.”
Global fashion retailer Uniqlo is all set to enter India by launching its first store in India. Now with more clarity, many such players will tap into India’s consumption story by catering new India.
Foreign single brand retailers can do now following things now which was not allowed earlier:
Open Online Store before Offline
Post FDI Relaxation, single brand retailers can start online sales; earlier, it was mandatory foreign retailers to set-up brick and mortar shop. Now retailers can open webstore without having offline presence in India. Establishing an offline store is an expansive affair which requires massive capital. This is a significant development ease capital pressure especially when they are not sure about the market.
100% FDI in Contract Manufacturing
Though, 100% FDI was already permitted in manufacturing under the automatic route as far as single brand retail is concerned. Now, the government has decided to allow up to 100% FDI in contract manufacturing via automatic route as well. Apple seems to be biggest beneficiary of this relaxation, because Apple operates on contract manufacturing. As of now, Apple works with its manufacturing partner Wistron and Foxconn to produce and assemble its products in India. Now it has option to launch its exclusive online store and flagship stores without any hassle.
This move will attract global players looking to set up alternate manufacturing hubs in the country. For example, Swedish furniture giant IKEA, which launched its exclusive operations in India last year, has been sourcing products for its global operations from India for several decades. IKEA has just launched its exclusive webstore in Mumbai.
Expressing the excitement over the development, a spokesperson from IKEA India said,” “IKEA India welcomes the relaxation of local sourcing norms for single brand retailers. Government of India’s efforts to enhance ease of doing business for single brand retailers is encouraging. IKEA has been sourcing from India for more than 30 years. We are committed to increase local sourcing from India. We have ambitious and optimistic plans to work with affordability and offer everyday low prices for the many people in India.”
Speaking on the development, Kumar Rajagopalan, CEO of Retailers Association of India, said “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.”
Clearly, it is a welcome move from the government, promising to take India on world map. Moreover, with ongoing trade war between US and China, this move will certainly help India in becoming huge manufacturing base for many global companies in the world.