Government is relaxing 30% local sourcing norm for FDI in single-brand retail

Key Highlights

Government is providing relaxation in compulsory 30% local sourcing norm for Foreign Direct Investment (FDI) in single-brand

If a retailer invests up to$100 Million will get six years to cope up with norms.

Amazon and Walmart’s have faced a loss of approximately $50 Billion in market capitalization because of the application of new FDI rules.

Amendments in Foreign direct investment policies and rules from 1st February 2019 have affected e-commerce industry astoundingly. Amazon and Walmart’s have faced a loss of approximately $50 Billion in market capitalization. Therefore now Government is providing relaxation in compulsory 30% local sourcing norm for Foreign Direct Investment (FDI) in single-brand retail in a bid to attract market Unicorns including Apple who is in the wish to open their own stores in India

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As according to previous norms which became in action from 1st February 2019:- 

1. Cashback system should be fair and crystal clear to the buyer and seller.
2. E-commerce marketplace is prohibited to show ownership or control over entities.
3. E-commerce companies can do a transaction with sellers only on a business to business basis.
4. Etailers are not allowed to put a mandatory situation to any seller to sell any product exclusively on its platform.

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Now the government has done some conditional clauses relaxations to enhance the inflow of FDI in the single retail brand. In present rule, sellers can’t sell products online before opening a physical outlet but as per relaxations in FDI norms, “If a seller is investing in India more than $200 Million it is allowed to sell products online before setting up physical outlets.” But still previous FDI rules keep on in action, 100% FDI is permitted but 30% of the value of goods sold from the country. This rule is mandatory for the first five years.

The policy also permits investors and businessman to set off incremental sourcing from India for their global operations against this 30% requirement from local outlets. This relaxation is only for the first five years and 30% sourcing has to be completed for India operations.

Under this relaxation, a retailer that invest up to $100 Million will get six years to cope up with the norms, if he invests $200 Million will get right years to meet norms and if he invests $300 Million will receive 10 years to cope up with the norms.

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