Bailay & Shambhavi Anand, The Economic Times
Delhi, 11 November 2015
a major leg-up for global brands such as Apple and Rolex, India
has relaxed a mandatory local procurement condition for high-tech
companies and allowed mass brands including IKEA to comply with
such sourcing norms from the day their first store opens rather
than from when the first tranche of investment is made.
The government on Tuesday also allowed foreign single-brand entities
to sell products through online channels provided they have permission
to sell through brick-and-mortar stores.
The relaxation in foreign direct investment norms is set to cheer
companies including Apple, which was earlier expected to source
30 per cent of its products locally. ET had reported earlier this
month that Apple had sought relaxation of the sourcing norm to
set up stores in India, while IKEA wanted more time to meet the
"It is seen that in certain high technology segments, it
is not possible for retail entity to comply with the sourcing
norms. To provide opportunity to such single brand entities, it
has been decided that in case of 'state-of-art' and 'cutting-edge
technology,' sourcing norms can be relaxed subject to government
approval," according to an official notification on Tuesday.
"To start counting the time to comply with the 30 per cent
local sourcing norm from store opening will support brands in
building long-term sustainable supply chains that are good for
India, good for the businesses and will enable better prices to
the Indian customers," an IKEA India spokesperson said in
an email. "Today's decision will allow the Indian IKEA customers
to interact with the brand IKEA in the same way as all IKEA's
The policy changes will pave the way for single-brand retailers
such as Swedish clothing company Hennes & Mauritz to tap India's
growing ecommerce business.
"FDI policy on the SBRT (single brand retail trading) provides
that retail trading, in any form, by means of e-commerce, would
not be permissible. It has been decided that an entity which has
been granted permission to undertake SBRT will be permitted to
undertake ecommerce activities," the latest policy paper
Proposals of companies including Tommy Hilfiger and Furla were
stuck with the Department of Industrial Policy & Promotion
for years because they had planned to set up their own stores
and sell products through franchisees, which wasn't allowed. Now,
such companies can engage in both wholesale trading - which is
needed for sales through franchisees - and retail trading as long
as it follows the norms for both segments.
"Fantastic relaxation. Different companies have different
business models. For south India, franchisee works and north India,
may be you want to own your own stores and eastern side you wanted
to do wholesaling because wholesalers were not good. Earlier,
you could not do all that. Now the same entity can do all these
activities and keep the business arms separate," said Baljit
Singh Kalha, a partner with Titus, the law firm that assists IKEA,
Furla and H&M.
Indian manufacturers with foreign investment that are controlled
by Indians can now sell their products through online channels
provided they make 70 per cent of the output and source the remainder
from local companies.
This has been a long-standing demand of ethnic products retailer
Fabindia, which has FDI and wanted to sell online. Earlier, such
companies could sell online only if they manufactured 100 per
cent of their products in-house.
"This is a great Diwali gift from the government to the
retailers. What they have done is provided a major boost to 'Make
in India' and also the ministry has recognised the fact that retail
will operate across multiple channels. This will be a huge fillip
to 'Make in India' as companies like ourselves manufacture 70
per cent of the products ourselves," said William Bissell,
managing director of Fabindia.
"There are several changes for companies in the retail
sector. For instance, the domestic sourcing requirement has to
be reckoned from the opening of first store and not from the first
day of operations. Technology-oriented products and high-end luxury
brands may be able to skip the domestic sourcing norms completely,
subject to case-to-case approvals. Another opening is for indigenous
brands to receive foreign investments that can enable them to
strengthen their operations," said Devangshu Dutta, chief
executive officer of retail consultancy Third Eyesight.
(Published in The