Relaxing of FDI in single brand retail: How will it impact foreign and home-grown firms

While the move is likely to benefit foreign brands, industry experts feel home-grown single-retail brands may not gain so much

e4m by Nafisa Shaheen
Updated: Sep 4, 2019 8:33 AM
FDI

The government recently proposed norms to relax conditions for foreign direct investment in single brand retail. The move has evoked mixed reactions from brands across domains. While the decision is likely to benefit foreign brands like IKEA, H&M and Apple, industry experts feel home-grown single-retail brands may not gain so much.

The amended FDI policy says companies having more than 51 per cent of FDI are mandated to source 30 per cent of their goods & services from within India. This 30 per cent has to be calculated from the first five years of operation in the country. The sourcing for exports too will be counted as local sourcing requirements. Also, single brand retailing companies can now start online retailing without opening stores.

Kumar Rajagopalan, Chief Executive Officer, Retailers Association of India (RAI), welcomed the move, saying it has significant capability to create ease of doing business for single brand retailers in the country.

“The fact that entire purchases, including those done for exports, will be done by single brand retailers from India is a good move by the government. It clearly indicates that they want FDI for single brand retail in the country. At the same time, it ensures that manufacturing in the country is given a boost. In our opinion, the export capability of this country will dramatically increase when these retailers start buying from within the country for their global requirements.”

He added, “FDI in contract manufacturing is also a good move as it can encourage new types of manufacturers to look at India seriously. The easing of the channel play for single brand retailers by allowing them to start off with online and then subsequently go offline is also a laudable change as it increases ease of doing business and will encourage them to come to the country.”
Kumar told exchange4media that RAI had written to the government asking it to ease FDI norms for single brand retail by considering the exports that is done from this country also as part of the 30 per cent sourcing norm.

Swedish furniture and home furnishing brand IKEA too has welcomed the government’s decision.

“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 low prices for the people in India,” said a spokesperson from the company.
While the foreign brands investing in India are happy with the decision on FDI, home-grown brands are not rejoicing.

According to an industry expert, with this move, home-grown brands would have to face more fierce competition from the foreign brands.
“Home-grown brands will have to find a niche for themselves in the market that will become cluttered,” said the expert.

“Though this step by the government is in alignment with its Digital India initiative, it will somewhere affect the local brands that are booming because of the Make in India campaign,” he added.

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