SUMMARY
Currently, in India foreign single-brand retail companies can start online sales only if they have a physical outlet
Mandatory 30% local sourcing norms may also be relaxed
The relaxation norms would be applicable when there is FDI in excess of $200 Mn within the first 2-3 years
The Indian government may allow single-brand foreign retail firms to open online stores before setting up brick-and-mortar shops in the country as part of its larger initiative to attract big investments in the single-brand retail sector.
Currently, overseas single-brand retail players are only allowed to do online sales only if they have a physical outlet in the country. As per a proposal, which is under active consideration of the government, the current criteria which mandates 30% local sourcing may be relaxed for the big retailers who will be given more time to meet these requirements.
Regarding the requirement of sourcing 30% of raw materials from India, the proposal will allow single-brand foreign retailers to adjust the incremental sourcing of goods from India for global operations during the initial 10 years from the current five years (beginning April 1 of the year of the opening of first store).
The relaxation, however, would be subject to a condition that a foreign entity would have to bring foreign direct investment (FDI) in excess of $200 Mn within the first 2-3 years.
Ecommerce Battle Intensifies
Earlier, foreign players could own up to 49% in a local single-brand retail chain but had to approach the Department of Industrial Policy and Promotion (DIPP) for a go-ahead to acquire the remaining 51%. Currently they can fully own their Indian operations without applying for permission.
Swedish furniture and home accessories chain IKEA has been on the biggest single brand retail chain to step foot into the country. With the proposed directives, the government is hoping to get more foreign investment by making it easier for such chains to enter the country.
If the government’s ambitions succeed, it could mean more choices for Indian consumers and more competition for ecommerce players. The move can also help single brand retail stores in India like Pepperfry get investments from abroad.
Meanwhile the Centre is still finalising its ecommerce policy and the notable suggestions that were made in the first copy of the ecommerce policy draft:
- FDI: Up to 49% foreign direct investment (FDI) may be allowed in inventory based ecommerce companies with a condition that the e-tailer sells 100% Made-in-India products. This will allow ecommerce firms to offer their own brands as long as they are made in India. It is also suggested that foreign ecommerce websites be brought on a level playing field with their Indian counterparts.
- Marketplace restrictions: Ecommerce marketplaces will no longer be allowed to offer deep discounts through their in-house companies listed as sellers. In fact, the policy framework recommends a sunset clause on discounts to prevent platforms from directly or indirectly influencing the prices of goods and services. Bulk purchases of branded goods by related party sellers, which lead to price distortions in a marketplace, will be prohibited.
- Made in India push: The sale of locally produced goods through online platforms would be promoted by allowing limited inventory-based B2C model, wherein 100% made in India products would be sold through platforms whose founder/promoter would be an Indian resident, the platform company would be controlled by an Indian management team and foreign equity would not exceed 49%.
