Budget impact: Exports may be counted as local sourcing for retail

Allowing sourcing through a third party or group companies is yet another concession

Even as the government is fine-tuning changes in the single-brand retail policy following the Budget proposal to relax the local sourcing norms, it is learnt that at least three significant tweaks are being planned to attract foreign investment from marquee multinational brands.

These changes — easier sourcing norms and access to the online market without the condition of a physical store — are likely to benefit international majors ranging from Apple to Ikea, Uniqlo to Shein and many others.

The local sourcing norm is likely to be changed with a definite focus on exports, a source close to the development said. That is, if a foreign company is buying Indian goods for products to be sold overseas, that will be factored in for calculating compliance with the 30 per cent local sourcing norm. In other words, the government may allow foreign single brand players to meet the 30 per cent local sourcing norm through exports. International chains including Walmart, Marks & Spencer’s, H&M and Ikea have for long been sourcing from India for overseas markets.

Allowing sourcing through third-party or group companies is yet another concession that the government is considering. The local sourcing norms may be relaxed to include global sourcing done from India directly or indirectly or by its group firms or through a third-party, a source close to the development said. So, the value of sourcing linked to a firm such as Foxconn, which makes products for Apple as well as some other electronics majors, could be counted to benefit the Cupertino-based iPhone maker. Apple, which doesn’t have a single fully-owned store in India, may be encouraged to set up outlets after the policy is changed.

“The proposed changes to relax the local sourcing norms are likely to address key concerns of big players. The stakeholder consultation process is on and a final decision may be taken after that,” said a government official.

Besides revisions in sourcing norms, the government is looking at allowing foreign brands to set up online stores, doing away with the pre-condition of having physical stores, according to one of the sources quoted above.

According to the current single-brand policy, the 30 per cent local sourcing procurement requirement has to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning April 1 of the year of opening of the first store. Thereafter, it needs to be met on an annual basis. For opening single brand retail stores, 100 per cent foreign direct investment (FDI) is allowed, but sourcing conditions kick in with 51 per cent foreign holding or above.   

The government may look at relaxing the concept of base year and annual increase as well. This is complex and even leads to aberration as companies with low exports in the base year can meet current requirement, while an entity with consistently high exports is at a disadvantage, according to the official.

With the change in policy stance, the government wants to address the dual objective of boosting exports and giving a thrust to the Make in India initiative. Job creation is another objective. “Online sales lead to creation of employment in logistics, digital payments, training, customer care, etc,” the official said.

FDI in India declined for the first time in the last six years in 2018-19, falling by 1 per cent to $44.37 billion as per official data.