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Govt eases local-sourcing norms in single-brand retail

By Retail4Growth Team | August 29, 2019

This will lead to greater flexibility and ease of operations for single-brand retailers, besides creating a level playing field for companies with higher exports in a base year.

FDIGovernment on Wednesday relaxed local sourcing norms for single-brand retailers with FDI and allowed them to sell online even before setting up physical stores.

Easing local sourcing norms for FDI in single brand retail was announced in Union Budget Speech of Finance Minister Nirmala Sitharaman. This will lead to greater flexibility and ease of operations for single-brand retailers, besides creating a level playing field for companies with higher exports in a base year. In addition, permitting online sales prior to opening of brick and mortar stores brings policy in sync with current market practices. Online sales will also lead to creation of jobs in logistics, digital payments, customer care, training and product skilling.

Currently, for single-brand retailers with over 50% FDI the policy requires 30% of value of goods has to be procured from India as a part of the local sourcing requirement. Further, as regards local sourcing requirement, the same can be met as an average during the first 5 years, and thereafter annually towards its India operations.

With a view to provide greater flexibility and ease of operations, the government on Wednesday decided that all procurement made from India by a single-brand retailer for that brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports.

The government has also decided that 'sourcing of goods from India for global operations' can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident), or indirectly by them through a third party under a legally tenable agreement.

The current policy provides that only that part of the global sourcing shall be counted towards local sourcing requirement which is over and above the previous year's value. Such requirement of year-on-year incremental increase in exports induces aberrations in the system as companies with lower exports in a base year or any of ' the subsequent years can meet the current requirements, while a company with consistently high exports gets unduly discriminated against. “It has been now decided that entire sourcing from India for global operations shall be considered towards local sourcing requirement,” the government clarified.

The present policy requires that single-brand retailers have to operate through brick and mortar stores before starting retail trading of that brand through e-commerce. This creates an artificial restriction and is out of sync with current market practices. “It has therefore been decided that retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail,” the government said.

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