FDI floodgate opens: Making India Apple of global retailers' eye

Single-brand foreign retailers have been sitting on the fence and working on their approach to enter the promising market in India for some time now. While players like Ikea, H&M, Zara etc. have jumped the fence and successfully forayed their respective ventures here, there are others like Apple who are still seeking conducive policy initiatives from the Indian government.

The key concern for global single-brand retailers to launch India operations has been the 30% local sourcing criteria in the foreign direct investment (FDI) policy. However, the said hurdle is set to go as the government in its Union Budget for 2019-20 has decided to relax the sourcing norms, paving the way for the entry of more single-brand retailers in the country.

Relaxation of local sourcing norms for single brand retailers, according to Peter Betzel, chief executive officer, Ikea India, is encouraging and indicates Indian government's priority to bring about ease of doing business for companies.

"Ikea is committed to increase local sourcing from India. We have ambitious and optimistic plans to work with affordability and offer everyday low prices for the many people in India. While we await the exact fine print to assess impact on us, we believe any positive move will encourage foreign direct investment (FDI) and grow the industry even more in India," said Betzel.

He added that incentives proposed on Electric Vehicles (EVs) and setting up of public charging facilitates will accelerate Ikea's efforts to increase the use of EVs in its logistics supply chain.

Echoing the sentiments, Janne Einola, country manager, H&M India, said, "We are happy to see the intent of the government to ease sourcing norms for FDI in single brand retail to drive ease of doing business in India."

Currently, the FDI policy allows 100% foreign investment in single brand retail trade (SBRT) but requires 30% local sourcing preferably from micro, small and medium enterprises (MSMEs), village and cottage industries, artisans and craftsmen where the FDI exceeds 51%. While there was a recent relaxation provided to offset the sourcing from India for global operations against the local sourcing, the same hasn't had the expected impact to boost FDI in the sector. While more details on the extent of local sourcing relaxation are awaited, industry experts see the government's move boost FDI inflows in the country.

"There was a lot of reluctance by the existing foreign joint venture (JV) players in the sector to increase FDI beyond 51% to avoid coping with the sourcing norms and also reluctance shown by new foreign brands to enter the sector owing to the sourcing norms. Accordingly, the budget proposal to relax the local sourcing conditions in the sector should have a big positive impact for the existing players and also to the sector owing to the new FDI, which should now enter the sector. While there were expectations around relaxing the stringent conditions in the multi brand retail sector as well, this proposal should give an initial boost to the retail sector while laying a road map for further relaxations," said Paresh Parekh, partner and national tax leader - consumer products and retail, EY India.

Industry experts feel the new norms will enable mobile like Oppo, OnePlus etc. to strengthen their presence in India with their single brand stores. In fact, Apple, the iPhone maker, has not launched its flagship branded stores since last three years and the new rules could that scenario now.

Faisal Kawoosa, founder, consultancy firm, TechArc, said, "It was a bit unrealistic to link the retail with sourcing. Making sourcing norms a prerequisite for FDI in single brand retail wasn't an enabling condition. With the tweaking of the policy, it should help brands to set up their own retail chains faster and with greater control. This will have its own multiplier effect on the economy and would help creating more jobs in retail segment. At the same time, it will increase the stakes of these brands in India which automatically increases the barriers to exit."

The new rules may not have a major impact on Apple's smartphone business. However, their laptops business could see significant gains as its pricing is very competitive when compared with equitable options. The decision to relax sourcing norms would offer Apple an opportunity to establish a footprint in the market, which can be leveraged for other products as they diversify in the due course of time.

Interventions like relaxing single-brand retail sourcing norms will help players to open more outlets which will not only push retail growth but also lead to employment generation, which is the need of the hour. "Job creation and addressing the skill gap is at the core for the $5-trillion economy mission, and initiatives like this will assist our move in that direction," said Mayur Saraswat, head of digital, IT, retail and telecom vertical, Teamlease Services.