The government on Wednesday relaxed FDI rule for foreign single-brand retailers and also permitted foreign investment in contract manufacturing and coal mining.
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Talking about the significance of decisions made by the cabinet, Ramesh Abhishek, Former Secretary, DPIIT told CNBC-TV18 that the government’s decisions on FDI reforms are quite significant and they will not only provide simplification but also much needed support to a lot of investors abroad.
“The single brand easing has been done earlier too on sourcing requirement and those companies who want to export more from India will be incentivised to do so now,” he said.
"In the previous policy you were deducting the exports before setting up single-brand store, so that was taking a big chunk out of this entire calculation. Now, they will be incentivised and opening of single brand store is not such a big deal because the products are being sold in India anyways," Abhishek reasoned.
"FDI was allowed to only those who were manufacturing themselves, it was not allowed to be brought in by those companies who were getting it done from others. For example if company A was manufacturing then only A could bring FDI, which was 100 percent in almost all sectors but if A was giving it to company B for manufacturing, then A could not get in FDI in manufacturing but now even company A can bring it in now,” said the former DPIIT secretary, adding that this is a big improvement in terms of policy reforms.
Talking on the significance of further relaxation on single brand retail on local sourcing norms, where exports will be allowed under the local sourcing head, Rajat Wahi, Parnter, Deloitte India said that it is a pretty significant move. "This step will ease the entry process for single-brand retail, especially for large apparel brands, soft furnishings, shoes, all the businesses that already make in India and export from India.” he added.
"However, for technical products, companies will still find it a bit difficult because you are still looking at consolidated revenue over five years and sourcing from that," said Wahi.
Talking about whether it would make easier for supply chains to move to India, Wahi said, “If a brand wants to come and set up its own sourcing then that could be challenging."
Harish Bijoor of Harish Bijoor Consultants said there has been a fair bit of easing up. “The first FDI norms that rolled out for single-brand retail were tough but it is still not what it should be. I think we are getting there gradually,” he said. "I like the effort of the government to take it gradually upwards. The ultimate will be when the government sits together at some point and discusses FDI in multi-brand retail because that is what is going to impact farmers.", he added.
Nisha Biswal, President, USIBC said, “These are all very welcome and positive moves and these combined with the Finance Ministers announcements a few days ago signal to investors that India is seriously removing constraints that companies have been voicing."
“I think that this will certainly get a positive response from US investors who are continuing to look at India. These are all extremely positive moves, particularly on contract manufacturing. India seeks to attract more supply chains and this certainly is an important step in that direction,” added Biswal.