To liberalise and simplify the foreign direct investment (FDI) policy, the Union Cabinet chaired by Prime Minister Narendra Modi has given its approval to a number of amendments. Government approval will no longer be required for FDI in Single Brand Retail Trading (SBRT). This will, in effect, allow 100 per cent FDI under automatic route for SBRT.
“Extant FDI policy on SBRT allows 49 per cent FDI under automatic route, and FDI beyond 49 per cent and up to 100 per cent through government approval route. It has now been decided to permit 100 per cent FDI under automatic route for SBRT,” an official statement said. The government has also decided to permit single brand retail trading entity to set off its incremental sourcing of goods from India for global operations during initial 5 years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India. “For this purpose, incremental sourcing will mean the increase in terms of value of such global sourcing from India for that single brand (in Rupee terms) in a particular financial year over the preceding financial year, by the non-resident entities undertaking single brand retail trading entity, either directly or through their group companies. After completion of this 5-year period, the SBRT entity shall be required to meet the 30 per cent sourcing norms directly towards its India’s operation, on an annual basis,” the statement said.
A non-resident entity or entities, whether owner of the brand or otherwise, is permitted to undertake ‘single brand’ product retail trading in India for the specific brand, either directly by the brand owner or through a legally tenable agreement executed between the Indian entity undertaking single brand retail trading and the brand owner. The further liberalisation of FDI policy is aimed at providing ease of doing business in the country. This will lead to larger FDI inflows contributing to growth of investment, income and employment. Commenting on the announcement, Ramesh Kaushik, VP – Brand Experience, Blackberrys, said, “With an expected positive impact on employment, this move should also add more purchasing power and bring larger customer base into the fold. In the prima facie, everyone stands to gain with this move.”
“In a market like India, which is one the world’s most opportunistic markets, where the retail industry has emerged as one of the most dynamic and fast-paced industries, this news of 100 per cent FDI in single brand retail is one of the most optimistic development.
“The country will now see the biggest retail players globally enter the Indian shores as individual brands, which would have a greatly positive impact on the economy as a whole. This would also mean the country would now see a lot more retail footprint from brands all over and there’ll be much more buying in the country which is always a good thing for a retail brand,” said Karan Behal, Founder and CEO, Pretty Secrets, one of the fastest growing retail brands in the country.
“This is great news for the retail industry in particular and India’s economy as a whole. The recent policy reforms and regulations have revived India’s profile as an investment destination. …With this announcement, global investors will have the opportunity to invest into what is one of the fastest growing economies in the world,” said Anshuman Magazine, Chairman, India and South East Asia, CBRE.
For India, FDI is a major driver of economic growth and a source of non-debt finance for the country’s economic development. Hence, the Indian government has put in place an investor friendly policy on FDI, under which FDI up to 100 per cent is permitted on the automatic route in most sectors/activities. In the recent past, the government has brought FDI policy reforms in a number of sectors, which has resulted in increased FDI inflows in to the country. During the year 2014-15, total FDI inflows received were $45.15 bn as against $36.05 bn in 2013-14. During 2015-16, country received total FDI of $55.46 bn. In the financial year 2016-17, total FDI of $60.08 bn has been received, which is an all-time high.