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Indian govt clarifies on sourcing of goods from SEZs
29 Feb '20
2 min read
Pic: Shutterstock
Goods procured from units in special economic zones (SEZs) by single-brand retailers owned by foreign firms would qualify for meeting the mandatory 30 per cent local sourcing conditions, according to a clarification by the Indian government. However, goods proposed to be sourced by a single-brand retailer from SEZ units would have to be manufactured in India.
As per the current foreign direct investment (FDI) policy on single-brand retail trading, cent per cent overseas investments are allowed in the sector. But sourcing of 30 per cent of the value of goods procured is mandatory from India for such companies having FDI beyond 51 per cent.
The government had received representations from various business entities seeking clarification whether sourcing of goods from units located in SEZs would qualify as sourcing from India, as per FDI policy.
“As regards, sourcing of goods from units located in SEZs in India, it may be clarified that sourcing of goods from such units would qualify as sourcing from India for the purpose of 30 per cent mandatory sourcing from India for proposals involving FDI beyond 51 per cent, subject to SEZ Act, 2005,” according to the clarification.
It added that compliance with all the conditions enumerated in the FDI policy and as notified under the Foreign Exchange Management Act would continue to be the responsibility of manufacturing entity. SEZs, developed as export hubs, are treated as a foreign territory in terms of customs laws. Procurement of goods and services from units in these zones are treated as imports.
In February 2006, the government opened the sector for foreign players for the first time by allowing 51 per cent FDI. In January 2012, the cap was raised to 100 per cent—up to 49 per cent through automatic route and beyond that with the government approval.
In January 2018, the government allowed 100 per cent FDI in the sector, permitting foreign players in single-brand retail trade to set up their own shops in India without government approval.
FDI into India grew by 15 per cent to $26 billion (about ₹1,85,000 crore) during April-September 2019-20.
As per the current foreign direct investment (FDI) policy on single-brand retail trading, cent per cent overseas investments are allowed in the sector. But sourcing of 30 per cent of the value of goods procured is mandatory from India for such companies having FDI beyond 51 per cent.
The government had received representations from various business entities seeking clarification whether sourcing of goods from units located in SEZs would qualify as sourcing from India, as per FDI policy.
“As regards, sourcing of goods from units located in SEZs in India, it may be clarified that sourcing of goods from such units would qualify as sourcing from India for the purpose of 30 per cent mandatory sourcing from India for proposals involving FDI beyond 51 per cent, subject to SEZ Act, 2005,” according to the clarification.
It added that compliance with all the conditions enumerated in the FDI policy and as notified under the Foreign Exchange Management Act would continue to be the responsibility of manufacturing entity. SEZs, developed as export hubs, are treated as a foreign territory in terms of customs laws. Procurement of goods and services from units in these zones are treated as imports.
In February 2006, the government opened the sector for foreign players for the first time by allowing 51 per cent FDI. In January 2012, the cap was raised to 100 per cent—up to 49 per cent through automatic route and beyond that with the government approval.
In January 2018, the government allowed 100 per cent FDI in the sector, permitting foreign players in single-brand retail trade to set up their own shops in India without government approval.
FDI into India grew by 15 per cent to $26 billion (about ₹1,85,000 crore) during April-September 2019-20.
Fibre2Fashion News Desk (DS)
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