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India FDI reforms to ease sourcing and retail

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November 14, 2015 Sweeping reforms are being planned to foreign direct investment in India, opening up key sectors such as manufacturing and retail.

<p>The reforms are aimed at making it easier to do business in the country, and to put more foreign investment proposals “on automatic route instead of government route where time and energy of the investors is wasted,” the government says.

Among the proposals are “opening up the manufacturing sector for wholesale, retail and e-commerce so that the industries are motivated to Make In India and sell to customers here instead of importing from other countries.”

A relaxation of sourcing restrictions should also make it easier for single brand retailers to tap into India’s growing market.

Under India's current foreign direct investment (FDI) rules, overseas clothing retailers can only open stores in the country if they source at least 30% of their products locally from the date of FDI receipt. This is being changed from the opening of the first store instead of from the first day of operations.The reforms also plan to allow the Foreign Investment Promotion Board (FIPB) to clear proposals up to INR50bn (US$755.6m), up from INR30bn (US$453.4m) before.

Government moves to simplify FDI policy follow amendments last month to try to boost textile and apparel exports from India.
Changes to the Merchandise Exports from India Scheme (MEIS) are to see duty benefits increased from INR180bn US$2.7bn) to INR210bn (US$3.2bn) – with the textile and apparel sector one of the major beneficiaries.
Launched in April this year, the MEIS provides a duty benefit of 2% of FOB value on exports to Group A countries (traditional markets like the US, EU-28 and Canada) and a single country in Group B (emerging markets). A 2% duty benefit is also provided for fabric exports to Bangladesh and Sri Lanka.
The recent amendments extend eligibility for the duty relief to textile exports to any country globally, while apparel now includes markets like South Africa, Russia, China and Hong Kong, as well as East and West African countries.

The Cotton Textiles Exports Promotion Council (Texprocil) believes the inclusion of exports of cotton fabrics – both woven and knitted – and made-ups could lift exports of cotton fabrics by 10-15%.</p>

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