The Union Cabinet on August 29, 2019 relaxed the rules for single-brand retail, more than seven years after the foreign investment cap was removed for the segment to attract marquee foreign brands such as Gucci, Louis Vuitton, Ikea and others into the country. The latest government move is in line with the recent Budget announcements on FDI changes.
While 30 per cent local sourcing remains a mandatory condition for single-brand retail, the government has now agreed to a long-standing industry demand to make things easier for foreign retailers. With the change, foreign retailers’ India buy for exports will be factored in to meet the 30 per cent domestic sourcing norm.
Companies in the single-brand space can also start online retailing without opening brick-and-mortar stores first, something that was not allowed earlier. While 100 per cent FDI is allowed in single-brand retail, whenever the foreign investment exceeds 51 per cent, the mandatory local sourcing norm kicks in.
Besides single-brand retail, the Cabinet allowed 100 per cent FDI under automatic route in contract manufacturing and commercial coal mining and related processing infrastructure. Sourcing for contract manufacturing will also be counted towards total sourcing commitments.
Also, for the first time, the government has set an FDI cap at 26 per cent for digital news media, which till now was not covered under any foreign investment rules. Digital media companies with more than 26 per cent FDI will now be required to bring down their foreign equity level.