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Local sourcing rule likely to go away in single-brand retail

Eyeing more foreign investment, govt may dilute or entirely remove the clause.

Jul 07, 2019, 11.26 PM IST
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Finance minister Nirmala Sitharaman, in her budget speech on Friday, had announced that the local sourcing norms will be eased for FDI in single brand retail sector.
NEW DELHI: India could altogether drop the local sourcing requirement for foreign investment in single-brand retailing as it eyes increased investment from companies such as Apple.

“Very clearly it has been stated that for the single brand retail trading local sourcing requirement is somewhat of an anachronistic kind of arrangement... It is not required to be there,” finance secretary Subhash Garg told ET. “That’s what the intent, or that is what the signalling is.”

Responding to a question on whether the clause would be dropped or diluted, Garg said both the approaches will need to be examined.

“There can be a proposal for entirely removing the local sourcing requirement from the single brand retail,” he said.

“There might also be liberalising it in some way where the life of these companies becomes much easier.” India allows 100% foreign investment in single-brand retail under the automatic route but requires the investor to source 30% of the value of goods sold from within the country.

Finance minister Nirmala Sitharaman, in her budget speech on Friday, had announced that the local sourcing norms will be eased for FDI in single brand retail sector.

As per the existing policy, the 30% local sourcing procurement requirement has to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning April 1 of the year of opening of the first store. Thereafter, it needs to be met on an annual basis.

The policy allows investors to set off incremental sourcing from India for global operations against this 30% requirement for local outlets for the first five years. An official at the Department for Promotion of Industry and Internal Trade (DPIIT) said there are year on year restrictions that need to be simplified.

“The annual requirement clause can be relaxed,” the official told ET. FDI equity inflows into India declined for the first time in six years in 2018-19, by 1% to $44.4 billion from $44.8 billion in the previous fiscal.
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