Local Sourcing Pressure Eases On Foreign Single-Brand Retailers In India

The Department for Promotion of Industry and Internal Trade (DPIIT) in a notification on Thursday (February 27) said that goods procured from units in special economic zones (SEZ) by single-brand retailers in India, which are owned by foreign companies, would qualify towards meeting the mandatory 30% local sourcing norms.

It said goods which are proposed to be sourced by a single brand retailer from SEZ units will count towards the quota for local sourcing from Indian companies. Under the foreign direct investment (FDI) rules, 100% overseas investment is allowed in the sector but the sourcing of 30% of the value of goods procured is mandatory from India for such companies having FDI beyond 51%.

“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% mandatory sourcing from India for proposals involving FDI beyond 51%, subject to SEZ Act, 2005,” the department said in the clarification.

For the uninitiated, SEZs, developed as export hubs, are treated as a foreign territory in terms of customs laws. The procurement of goods and services from the units in these zones are treated as imports, but this definition is being loosened to promote single-brand retail investment in India.

The department further stated that compliance with all the conditions enumerated in the FDI policy and as notified under the Foreign Exchange Management Act (FEMA) would continue to be the responsibility of the manufacturing entity.

The development comes after several companies sought clarity on sourcing of goods from units located in SEZs would qualify as sourcing from India as per the FDI policy. It is to be noted that in January 2018, the government allowed 100% FDI in the sector, permitting foreign players in single-brand retail trade to set up own shops in India without government approval.

In August 2019, Union minister of industry and commerce Piyush Goyal had said that domestic procurement for exports has been included in 30% local sourcing clause. It was reported that government plans for relaxation in rules in single-brand retail where up to 49% is allowed through the automatic route. The report said that officials were looking at proposals to allow local sourcing norms requirement to be met in 8-10 years, instead of five.