There may be some good news on the cards for single-brand retailers. The Government may review the requirement for local sourcing of 30 per cent of the goods sold by overseas players, who have entered India through the single-brand retail window.
The Department of Industrial Policy and Promotion had earlier ruled that it was mandatory for single-brand retailers to locally procure 30 per cent of the goods which they sold in India, over a span of five years.
Beyond 51 per cent FDI, it is required that at least 30 per cent of the value of goods be sourced from India, preferably from micro, small and medium enterprises (MSMEs), village and cottage industries, artisans or craftsmen.
The Government wants to ensure that the country’s small and medium manufacturers become part of the global supply chain.
The Government’s decision comes after some global players, including Swedish retail giant H&M, raised concerns during a recent meeting.
Companies told the Government that India was a large sourcing base for them to meet their global business needs and the mandatory domestic purchase requirement was a hurdle.
H&M is the world’s second largest fashion retailer. It has just opened a 37,000 sq ft store in DLF Mall of India in Delhi-NCR.
Companies like Zara, IKEA, H&M and Marks & Spencer have protested saying they are already voluntarily sourcing a lot of their goods from India. A mandatory clause, and restrictions, would make it unfeasible for them to operate in India.
IKEA has big plans for India. The furniture retail behemoth plans to open 25 stores in the country at an investment of Rs 12,500 crore.
The Government has already exempted iPhone and iPad maker Apple from mandatory local sourcing rule, a move which would pave the way for tech giant opening single-brand retail stores in the country.
A change in the existing policy, however, is going to be tricky for the Government, which needs to keep the Make in India campaign in mind before effecting any changes. Prime Minister Narendra Modi has been pushing the Make in India programme across the world in order to create employment and increase India’s GDP.
Retailing in India is one of the pillars of its economy and accounts for about 22 per cent of its GDP. The Indian retail market is estimated to be $500 billion and one of the top five retail markets in the world by economic value. India is one of the fastest growing retail markets in the world, with 1.2 billion people.