The Union government has allowed 100 per cent foreign direct investment (FDI) in single-brand retail through the automatic route. Local sourcing norms too have been relaxed. Big brands from the West are now set to set shop in India. Subir Ghosh writes
It had been coming for a while. And when the Union government announced that India would now be open to 100 per cent foreign direct investment (FDI) in single-brand retail through the automatic route from the forthcoming fiscal year 2018-19, it was a prelude to the Prime Minister's interactions with chief executives of top multinational companies at the World Economic Forum (WEF) meeting in Davos, Switzerland. Among other things, Narendra Modi was expressly there to woo investors.
Initially, the announcement of January 10, 2018 was to have actually been made during the Budget presentation next month. But since the Prime Minister was already set for Davos, the grand declaration was advanced. This enabled Modi to invite investments into the country through his address to global chief executives at the summit citing this major "retail reform."
Sure, a major move it certainly has been-one that is expected to transform not only the retail landscape, but have an indirect bearing on domestic manufacturing to a considerable extent as well. The decision has been met with mixed reactions-industry is happy; traders are not. Advocates are happy; critics are not. What one gets to read and hear in the frenetic discussions that have been set abuzz is an inconsistent mix as well-one of facts and speculation. There is fact, and there is imagination.
Facts are writ in stone. One such detail is that an existing clause that was purportedly hindering FDI inflows has been done away with-foreign retailers can now delay having to meet the 30 per cent local sourcing norm by five years. Moreover, single-brand retailers can set off "incremental sourcing of goods from India for global operations during [the] initial five years, beginning April 1 of the year of the opening of first store against the mandatory sourcing requirement of 30 per cent of purchases from India." After five years, a company will have to meet the sourcing criterion every year. Although 100 per cent FDI was already permitted in single-brand retail, only up to 49 per cent was allowed through the automatic route, and investment above that needed official sanction.
In short, the entry of big brands has been made easy. Yet, contrary to what many have been saying, this is not an opening of the floodgates. That would happen if and only when similar barriers are lifted for multi-brand retail. But no one as of now is guessing when that might happen, if at all. At this moment, all eyes are trained on brands like Hennes & Mauritz AB, the Swedish multinational clothing-retail company known for its fast-fashion clothing for men, women, teenagers and children, and Ikea, the Swedish-founded Dutch-based multinational group that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories. H&M started operations in India in 2015, and Ikea has been reported to be planning a 2018 launch. Both had been reported to be lobbying for such a relaxation.
H&M, of course, is only the first among the branded lot, particularly because of its top-of-the-memory recall value. If industry buzz is anything to go by, over 200 fashion and apparel brands are already lined up to enter India. These include labels like Avva, Colin's, Damat, Tudba Deri and Dufy. Japanese clothing and accessory retailer Uniqlo, which had applied for a single-brand retail venture in India, too may now soon make an appearance under the automatic route.