The government on Tuesday allowed single-brand retailers with foreign investment to sell online, a move that could clear the way for companies such as Swedish furniture retailer Ikea and fashion retailer Hennes and Mauritz AB to set up e-commerce portals in the country.
Companies will also get more time to meet requirements on local sourcing, the department of industrial policy and promotion said.
The rule that mandates single-brand retailers to locally procure 30% of their goods sold in India over a span of five years remains; however, the new policy will allow the retailer to meet the norm from the time it opens the first store. Until now, the five-year deadline started from the date of receipt of foreign direct investment (FDI).
So far, single-brand retailers with FDI were shut out of online trading in any form.
Several large foreign companies such as sportswear retailer Adidas AG and Swiss watch retailer Swatch SA have received permission to set up fully-owned stores in India, while others like Nike Inc. are awaiting approval. The latest move will allow the companies to sell online through their own online platforms.
The biggest beneficiary is likely to be Ikea, which plans to open 25 stores in the country at an investment of Rs.10,500 crore. At a recent meeting with Prime Minister Narendra Modi, Ikea’s global chief Peter Agnefjall had said the company needed more time to procure 30% goods locally.
Ikea had requested the government to allow a long-term solution to local sourcing, asking that instead of being given five years to procure 30% of local goods from the time the FDI proposal is cleared, time for sourcing norms be calculated from the date of store opening. An Ikea store typically takes about 12-18 months to be built.
The company, which applied to open front-end retail stores in India in 2013, is likely to open its first Indian store in Hyderabad by 2017.
Currently, Ikea sources goods worth €300 million from India annually that it aims to double over the next couple of years.
Ikea’s India spokesperson welcomed the development. “To start counting the time to comply with the 30% local sourcing norm from store opening will support brands in building long-term sustainable supply chains that are good for India, good for the businesses and will enable better prices to the Indian customers,” the company said in a statement. “Allowing the e-commerce channel of sales is a salute to today’s modern consumers who expect their favourite brands to be available whenever and wherever they want and today’s decision will allow the Indian Ikea customers to interact with the brand Ikea in the same way as all Ikea’s global customer.”
According to Sahil Gupta, director (regulatory services) at consulting firm PwC, the announcement will cheer the single-brand investor community. “The relaxation for brand owners to undertake wholesale and retail in the same company, allowing them to tap to new-age digital means of reaching their consumers will provide an impetus to this sector. Also, this pronouncement helps our home- grown brands to leverage foreign capital and strengthen their presence in the market,” he said.
The circular also clarifies the FDI norms for the Indian manufacturer, stating that a manufacturer will be permitted to sell its own branded products in any manner i.e. wholesale and retail, including through e-commerce platforms.
“For the purposes of FDI policy, Indian manufacturer would be the investee company, which is the owner of the Indian brand and which manufactures in India, in terms of value, at least 70% of its products in-house, and sources, at most 30% from Indian manufacturers,” according to the circular.
However, the government through the circular has stated that Indian brands should be owned and controlled by resident Indian citizens and/or companies which are owned and controlled by resident Indian citizens.
“The announcement touches the full spectrum of activities and sectors. In particular, reference to wholesale cash and carry, single-brand retail trade and e-commerce is of significant importance as this has an impact on a very large section of the society,” said Anil Talreja, partner at consulting firm Deloitte Haskins and Sells.
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