Interview with Textile industry

Topic

Sourcing norms for single-brand retail have been eased. How do you think this will impact the Indian retail sector?

Relaxation in FDI norms will support growth of retail sector
The Indian government has relaxed local sourcing norms for single-brand retailers entering the country through foreign direct investment (FDI) route. Fibre2Fashion takes reactions from a cross-section of the industry.

 

The ease in FDI rules will provide greater flexibility to global fashion brands. This will help to improve the retail landscape of India, increase investments, and eventually employment in the country.
 
However, this could possibly affect garment manufacturing in the country. The eased rules will provide greater liberty to brands to source globally depending mainly on the cost competitiveness. This might result in brands limiting their sourcing requirement to only 30 per cent in blocks of 5 years from India, including sourcing for exports. In such a scenario, it is important that these sourcing clauses are very closely monitored to ensure that sourcing from India is continuously increasing, so as to be in sync with the Make in India drive of the government.

In line with the overall demand, the government has relaxed the FDI norms in single-brand retail and expanded the definition of mandatory 30 per cent domestic sourcing norms. This is excellent news for foreign retailer giants like IKEA and Apple who will now find Indian market more lucrative to invest and conduct business in.
 
Also, the announcement to allow single-brand retailers to start online sales, effectively doing away with the previous condition of first setting up a mandatory brick-and-mortar store, is also commendable. Massive capital is required for setting up a physical store vis-à-vis online platforms. Now retailers can start online sales without having to open physical stores. This will significantly ease capital pressure on small retailers who are looking to start afresh.

The success of brands such as Zara, Starbucks and other international names that are already operational here has made India's retail sector shine at the world level. This new ease in FDI norms will give a big boost to global brands and make the India market attractive for them for further trade and investments. It would have an after-effect of also boosting exports which they can source from India to fit their product portfolio. 

Permission to trade through e-commerce is a great decision as simultaneously brands would move their omnichannel machinery to India. This would increase the market size quickly and make them reach out across India. Needless to say this will result in higher business volume and growth. 

Single-brand retailers will now be able to start online sales before they set up brick-and-mortar stores, but will need to open these within two years. The two-year period, however, may not be enough for retailers to set up stores at prime locations.

The automatic 100 per cent FDI in retail, with 30 per cent domestic sourcing above equity ownership of 51 per cent has been a long-standing demand of the industry and is welcome, though a little delayed. It will help FDI influx from many iconic brands, who stayed away as they did not want to risk their brand or operations with equity sharing arrangements. This is also likely to help in domestic job creation. However, the actual benefits will only be seen in the first quarter of the next financial, even if this rule gets applicable immediately. Further, many brands, like Tiffany and others, which have come under the franchise model in India, may rethink their strategy of India considering this new announcement.

The Indian retail sector traverses many industries such as clothing / lifestyle/ electronics and much more. The Cabinet's decision has definitely given impetus to many single-brand retailers to set up owned / non-franchise stores and direct e-commerce options. With the opening up of this segment, a lot of MNCs are likely to invest in India and push forward the Digital India movement. Additionally, the eased norms have added fuel to world-known brands to benefit local sourcing too.

We are delighted! H&M has been sourcing from India since the last 30 years for its international markets, it's great to see global sourcing is now part of the 30 per cent local sourcing norms. We see this supporting the ease of doing business in India and driving in larger investments from global companies.

It is a progressive decision by the government. It will be easier to meet the 30 per cent minimum local sourcing criteria for global brands wanting to run single brand retail, if they are also sourcing from India for other markets. I see this as a big opportunity for apparel companies, where indian factories have strong capabilities. This decision not only improves ease of doing business, but also promotes Make in India initiative by incentivising global sourcing from India.

Published on: 29/08/2019

DISCLAIMER: All views and opinions expressed in this column are solely of the interviewee, and they do not reflect in any way the opinion of Fibre2Fashion.com.

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