(Sources: Economic Times India, Moneycontrol | January 15, 2018)
The Indian government has announced sweeping relaxations in foreign direct investment (FDI) rules in single-brand retail and other areas.
Currently, only 49 percent of FDI was allowed under automatic route in singe-brand retail. Investment beyond that level required government approval.
Furthermore, single-brand retailers can set off “incremental sourcing of goods from India for global operations during initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30% of purchases from India”. After five years, the firm will have to meet the sourcing norm every year.
Commerce and industry minister Suresh Prabhu said the government has decided to “remove roadblocks” to foreign investment. “We hope it will facilitate faster development of the economy,” he said.
Industry experts as well as the Retailers Association of India (RAI) have hailed the new foreign investment norms as a positive step.
“We believe the decision to allow 100 percent FDI through automatic route will ease the process for foreign as well domestic brands,” Kumar Rajagopalan of RAI said in a statement.
Brands such as Uniqlo and Xiaomi which had applied to start single-brand retail businesses may now get approval under the automatic route. The easing of the sourcing rules should help companies like H&M, which started operations in India in 2015, and Ikea, which plans a 2018 opening, both have been seeking such a relaxation.
The reform is expected to boost India’s attractiveness as an investment destination as well as drive growth in the real estate supply for retail sector in the near future.