The budget proposal to relax the local sourcing conditions in the Single Brand Retail Trade (SBRT) sector should have a big positive impact for both the existing players and the sector owing to the new foreign direct investment (FDI) which should now enter the sector.
Currently, the FDI policy on SBTR provides for a 30 percent local sourcing, preferably from MSMEs, village and cottage industries, artisans and craftsmen where the FDI exceeds 51 percent.
While there was a recent relaxation provided to offset the sourcing from India for global operations against the local sourcing, the same didn’t have the expected impact to boost FDI in the sector.
There was a lot of reluctance by the existing foreign joint venture (JV) players in the sector to increase FDI beyond 51 percent so as to avoid coping with the sourcing norms, as well as reluctance shown by new foreign brands to enter the sector for the same reason.
While there were expectations around relaxing the stringent conditions in the multi-brand retail sector as well, this proposal should give an initial boost to the retail sector while laying a road map for further relaxations.
(Paresh Parekh, Partner and National Tax Leader, Consumer Products and Retail, EY India. The views expressed are personal.)