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30% local sourcing FDI rule on single brand retailers relaxed, physical stores before online sales not necessary

Piyush Goyal, Prakash Javadekar
Source: @PiyushGoyal/Twitter

Single brand retailers in India are no longer restrained by the 30% local sourcing FDI norms. They can also sell their goods online up to 2 years before opening brick and mortar stores. In a major relief to single brand retailers, the Union cabinet, on August 28, decided to relax norms for FDI to revive economic growth. Finance Minister Nirmala Sitharaman had announced that FDI norms would be eased for the single brand retail sector in her budget speech on July 5.

Here are the new FDI rules for single brand retail trading [SBRT]:

  1. “It has been decided that all procurements made from India by the SBRT entity for that single brand shall be counted towards local sourcing, irrespective of whether the goods procured are sold in India or exported. Further, the current cap of considering exports for 5 years only is proposed to be removed, to give an impetus to exports.”
    Old rule: “30% of value of goods has to be procured from India if SBRT entity has FDI more than 51%. … [The] local sourcing requirement … can be met as an average during the first 5 years, and thereafter annually towards its India operations.”
  2. “ ‘sourcing of goods from India for global operations’ can be done directly by the entity undertaking SBRT or its group companies (resident or non-resident}, or indirectly by them through a third party under a legally tenable agreement.”
    Old rule: “Local sourcing requirement, incremental sourcing for global operations by the non-resident entities undertaking single brand retail trading, either directly or through their group companies, will also be counted towards local sourcing requirement for the first 5 years.”
  1. Entire sourcing from India for global operations shall be considered towards local sourcing requirement. (And no incremental value)”
    Old rule: “Only that part of the global sourcing shall be counted towards local sourcing requirement which is over and above the previous year’s value”
  1. “Retail trading through online trade can also be undertaken prior to opening of brick and mortar stores, subject to the condition that the entity opens brick and mortar stores within 2 years from date of start of online retail.” This rule will “lead to creation of jobs in logistics, digital payments, customer care, training and product skilling”
    Old rule: “SBRT entities have to operate through brick and mortar stores before starting retail trading of that brand through e-commerce.”

In addition, the government announced the following FDI norms:

  1. 100% FDI under automatic route for sale of coal and for coal mining activities
  2. 100% FDI under automatic route in contract manufacturing
  3. 26% FDI under government route for uploading/streaming of News & Current Affairs through Digital Media, on the lines of print media

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