Modi’s Diwali bonanza to investors: FDI reforms ease business for single-brand retailers

Giving the much needed reforms push to the economy, Prime Minister Narendra Modi-led NDA government on Tuesday announced key Foreign Direct Investment (FDI) reforms and liberalisation in as many as 15 sectors.
“The crux of these reforms is to further ease, rationalise and simplify the process of foreign investments in the country and to put more and more FDI proposals on automatic route instead of government route where time and energy of the investors is wasted,” the government’s release said.
These FDI reforms are set to benefit sectors such as agriculture and animal husbandry, plantation, defence, broadcasting, civil aviation and manufacturing.
One of the most important sectors to be affected by this policy is single-brand retail. Now, global technology brands such as Apple or Sony will be able to open fully-owned stores in India. Others such as Ikea, Zara, H&M, GAP and Marks & Spencer will now be able to sell their products online while operating stores in India.
“Opening up the manufacturing sector for wholesale, retail and e-commerce so that the industries are motivated to Make in India and sell it to the customers here instead of importing from other countries,” the release said.
Companies will also get more time to meet requirements on local sourcing, the department of industrial policy and promotion said.
The rule that mandates single-brand retailers to locally procure 30% of their goods sold in India over a span of five years remains; however, the new policy will allow the retailer to meet the norm from the time it opens the first store. Until now, the five-year deadline started from the date of receipt of foreign direct investment (FDI).
So far, single-brand retailers with FDI were shut out of online trading in any form.
Several large foreign companies such as sportswear retailer Adidas AG and Swiss watch retailer Swatch SA have received permission to set up fully-owned stores in India while others like Nike Inc. are awaiting approval. The latest move will allow the companies to sell online through their own online platforms.
The release also clarifies the FDI norms for the Indian manufacturer, stating that a manufacturer will be permitted to sell its own branded products in any manner i.e. wholesale and retail, including through e-commerce platforms.
“For the purposes of FDI policy, Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in-house, and sources, at most 30% from Indian manufacturers,” according to the release.
However, the government has stated that Indian brands should be owned and controlled by resident Indian citizens and/or companies which are owned and controlled by resident Indian citizens.
Expanding its financial ambit, the government also allowed Foreign Investment Promotion Board (FIPB) to deal with proposals upto Rs 5,000 crore from the current Rs 3,000 crore.
“Few other proposals seek to enhance the sectoral caps so that foreign investors don’t have to face fragmented ownership issues and get motivated to deploy their resources and technology with full force,” the release said.
Soon after the FDI policy announcement, Modi tweeted: “Govt’s commitment to development and reforms is unequivocal & unwavering. Today’s reforms are another example of emphasis on minimum government, maximum governance. They will ease, rationalise and simplify processes.”
These decisions come into force with immediate effect.” DIPP secretary Amitabh Kant said: “This is Diwali gift for investors. This is the biggest bang reform of the government.”