Relief for Single Brand Retails

Article posted by: office@indialawoffices.com

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In a step towards achieving the vision 2025 of becoming a US$ 5 trillion economy, the government of India has pronounced to relax local sourcing norms for single-brand retailers with FDI. This step is presumed to boost the economy by permitting the retailers to sell their products online even before having to set-up physical stores provided that the global retail opens a brick and mortar store within 2 years from the date of start of the online retail.

The Government of India has announced the following changes in the FDI policy of Single Brand Retail Trade:

  • all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports. 
  • 'Sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement. 
  • Entire sourcing from India for global operations shall be considered towards local sourcing requirement and not just the incremental value. 
  • The retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail.

What does this mean?

This means that more & more International products and brands that were reluctant to enter the Indian market due to the need to have a compulsory partner will now be happy to come to India. Also with the relaxation of the 30% sourcing condition on all products to be sold in India to a position where their purchases would be set off against the 30%,will give a boost to the economy as well as exports

Moreover, the current move is believed to benefit global retailers like H&M (Swedish multinational clothing retail company), IKEA (global furniture giant) as well as Uniqlo (Japanese casual wear retailer) among multiple others. Although 100% FDI was always allowed in single brand retail, the limitation was the provision that the retails were under obligation to source from the Indian market. This move will bring huge difference in terms of ushering investments in the sector.

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