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FDI in Retail: Panel on waiver of local sourcing norms set up

LiveMint logoLiveMint 28-08-2017 Asit Ranjan Mishra

New Delhi: The government has set up a committee under department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek to decide on requests for waiver of 30% local sourcing norms by foreign single brand retail companies planning to set up branded stores in India and claiming to have products with state-of-the-art and cutting-edge technology.

The committee will comprise representatives of NITI Aayog, officials from the concerned ministries and independent technical experts.

Last year, a similar informal committee, headed by the DIPP secretary without technical experts, had recommended waiving the local sourcing norm for Apple Inc. to allow the company to open its own branded stores in India but the proposal was rejected by the finance ministry.

Goldie Dhama, a partner at PwC India, said the move will be helpful. “At least now companies know whom to approach even though a clear definition of state-of-the-art and cutting-edge technology is still missing,” he added.

Devraj Singh, executive director, tax and regulatory services at EY India, said the committee under the DIPP secretary will enhance investor confidence among those seeking relaxation from the sourcing norms in single brand retail trading.

He said there were high expectations from the foreign direct investment (FDI) policy review although the government seems to be of the view that policy relaxation is a continuous process and should be delinked with the consolidated FDI policy.

“The policy liberalization may be carried out during the year in the form of press notes and can be consolidated on an annual basis through consolidated FDI policy,” Singh added.

An e-commerce entity is permitted to source only up to 25% sales through one of its group companies. In the consolidated policy, DIPP clarified that “sales” will be calculated based on value (not volume) of items sold on a financial year basis.

“It is only a clarification, you can’t take any advantage of that. We had done the similar interpretation earlier and now they have clarified it,” said Amarjeet Singh, leader-North India at KPMG.

The government has also allowed the conversion of an limited liability partnership (LLP) firm with foreign investment into a company under the automatic route, provided it is operating in sectors where 100% FDI is allowed through the automatic route and there are no FDI-linked performance conditions. Similarly, conversion of a company having foreign investment into an LLP has been allowed under similar conditions.

The government has retained a clause that prohibits a foreign airline from buying stakes in Air India Ltd under its FDI policy at a time when it has declared its intention to privatize the national carrier.

In the consolidated FDI policy, it said that the rule allowing foreign carriers to own up to 49% in Indian carriers does not apply to Air India.

In June last year, the government decided to allow 100% investment by foreign entities, and not airline companies, into the aviation sector to own and operate air carriers. The investment of foreign airlines in Indian companies remained limited to 49%.

Jet Airways has investments from Etihad Airways, while Singapore Airlines has investments in the Vistara and AirAsia airlines.

Qatar Airways too has shown interest in starting an airline.

In June, the government surprised everyone with its decision to privatize Air India. InterGlobe Aviation Ltd, which runs IndiGo, has already thrown its hat in the ring. Mint reported on 23 July that private equity funds KKR and Co. and Warburg Pincus were also considering doing so.

Yuvraj Malik contributed to this story.

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