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Foreign apparel retailers wary of 30% sourcing clause

25
Jan '12
The notification issued by the Government of India earlier this month for allowing up to 100 percent foreign direct investment (FDI) in single brand retail puts a condition of 30 percent sourcing from local small and medium enterprises, in case of foreign investment exceeding 51 percent.

The 30 percent sourcing clause is likely to pose hurdles for foreign apparel retailers wanting to enter the Indian market. Several well-known brands like Abercrombie, Prada, GAP and Hennes & Mauritz are eager to open their outlets in India on their own.

Some global retailers who are already present in India may now look forward to increase their share in the Indian market. These include brands like Christian Dior, Zara, Canali, Louis Vuitton, Jimmy Choo and Marks & Spencer.

Speaking to fibre2fashion, Ms. Anku Nath, Director (Trade Policy Advocacy) at the US-India Business Council (USIBC), said, “The relaxation of FDI cap in any sector can be expected to attract additional investment, technology and expertise from global firms, and the same holds true for India's apparel sector.”

Analysing the impact of the new policy on Indian apparel sector, she says, “Though it is difficult to predict the exact implications of the recent increase in FDI limits for the single-brand retail sector, we expect that global apparel companies will consider setting up or expanding their existing operations in India. Investors will find a skilled workforce to staff operations and a rising middle class of consumers eager to purchase their goods. India's apparel sector stands to benefit as investment and world-class technologies are incorporated into new operations.”

Reacting to the '30 percent sourcing' clause, she says, “The clause certainly merits further examination, and industry is eager to engage with the Department of Industrial Policy & Promotion (DIPP) to better understand how it will be applied for various sectors and types of retailers. Developing a supply chain that includes a significant sourcing requirement from 'small industries / village and cottage industries, artisans and craftsmen' is not an easy task and it will take time to accomplish. Companies will need to fully evaluate their business models' abilities to take on such a requirement.”

“We believe that the opening of single-brand retail in India is a great opportunity for global apparel retailers,” she concludes.

Fibre2fashion News Desk - India


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