FIPB for relaxing sourcing clause in FDI

10 Jun '16

3 min read

The Foreign Investment Promotion Board (FIPB) has asked the Department of Industrial Policy and Promotion (DIPP), to incorporate relaxation in local sourcing rules for foreign-funded single-brand retailers selling products with cutting-edge technology.

The Board, which clears foreign investment proposals, has written to the DIPP saying that the single-brand retail policy could be tweaked to give high-tech companies a time frame within which they need to meet the sourcing condition. The DIPP has been lobbying for clearance for Apple Inc to set up its stores in India.

A newspaper report quoting a government official said “any relaxation in the time frame for sourcing has to be part of the FDI policy framework and cannot be on a case-to-case basis. The Board will be able to grant any relaxation only if the rules and policy allow for them.

Also, a decision on the sourcing rule cannot be made with respect to one company and an enabling policy framework must help in dealing with such proposals in future, the official explained.

The present policy on foreign investment in single-brand retail makes it compulsory for Indian operations with 51 per cent or more FDI to source at least 30 per cent of the value of products sold, of raw materials from local suppliers preferably micro, small and medium enterprises, village and cottage industries, artisans, and craftsmen.

Apple, which had sought approval to set up shop in India, has pointed to difficulties in meeting this requirement citing advanced technology involved in its products. The DIPP, which has supported the proposal, is seeking relaxation under a clause that covers investors bringing cutting-edge technology.

The FIPB has so far cleared Apple's proposal to set up its 100 per cent-owned iconic stores, but has not given them exemption from the 30 per cent sourcing clause. What went against the proposal was the absence of a definition for 'cutting edge' in the policy.

The inter-ministerial FIPB wants DIPP to put in place an appropriate policy framework to define cutting edge technology and the time that can be given to the investor to meet the 30 per cent local sourcing rule.

Policymakers within the government are in favour of continuing with condition of local sourcing for the retail sector. The government has identified revival of manufacturing in the country as its key focus area to boost job creation.

India has been allowing 100 per cent FDI in single-brand retail since January 2012. The policy was revised in November 2015, allowing companies that bring cutting-edge and state-of-the-art technology to open single-brand outlets without carrying out 30 per cent local sourcing, subject to government approval.

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