India gives green signal to global majors like IKEA, Zara, H&M and more

• The Narendra Modi government has eased the norms for 30% local sourcing rule for FDI in single-brand retail trading.
• The government has now allowed online sales even before a company sets up a brick and mortar presence in India.
• This will invite major single brand retailers who want to enter the Indian market.

Indians will now be able to enjoy more stores of Swedish furniture giant IKEA, or Spanish brand Zara, H&M and many more, all thanks to government’s move to relax laws. They will also be able to buy more foreign brands online, even those which have no stores in the country yet.

Yesterday, the government in its Foreign Direct Investment (FDI) policy changes, eased the norms that had earlier held them back – like 30% local sourcing rule for single-brand retailers.

"H&M has been sourcing from India since the last 30 years for its international markets, its great to see global sourcing is now part of the 30% local sourcing norms. We see this supporting the ease of doing business in India and driving in larger investments from global companies," said Janne Einola, Country Manager H&M India.

The Narendra Modi-led government has been chasing growth at a time when the country’s corporate sector is saddling debt coupled with slow demand. To supplant this gap, the government is trying to attract foreign investors who are keen on the India growth story.

“This will lead to greater flexibility and ease of operations for single brand retail trading (SBRT) entities, besides creating a level playing field for companies with higher exports in a base year,” said the government said.

As a part of the eased norms, the government decided that all procurements made from India by the single brand retail entity shall be recognised as local sourcing. This is irrespective of whether the goods procured are either sold in India or exported.

Green signal to global corporations

The relaxation of the FDI norms will send the green signal to global corporations who want their share of the growing Indian retail market.

“Many foreign brands have been in a wait-and-watch mode on account of the difficulties so far perceived in meeting the mandated sourcing norms. With more clarity, many such players can now make their foray into India to tap into India’s consumption story - and to boost investments here,” said Shobhit Agarwal, MD and CEO, ANAROCK Capital.

Online before brick

The government also allows online sales even before a company sets up a brick-and-mortar presence. “Online sales will also lead to creation of jobs in logistics, digital payments, customer care, training and product skilling,” said the government said.

This will invite major single brand retailers who want to enter the Indian market, without necessarily having to invest in the required physical infrastructure.

“Massive capital is required for setting up a physical store vis-à-vis online platforms. Now retailers can start online sales without having to open physical stores. This will significantly ease capital pressure on small retailers who are looking to start afresh,” said Agarwal.