Single brand retail: Poised for gains or lost in ambiguity?

Foreign direct investment (FDI) in the single brand retail trading (SBRT) sector was expected to gain traction owing to a comparatively relaxed framework introduced last year. The revised regime permitted 100% FDI under the automatic route (earlier, it required approval for investments exceeding 49%) and allowed entities to offset incremental sourcing for its global operations from India against the mandatory 30% local sourcing requirement.

However, the amended policy may have failed to achieve the desired objective because it falls short of addressing certain practical concerns and ambiguities.

Sourcing norms

The revised norms do little to allay the concerns of players engaged in segments in which it may not be practically possible (owing to quality, technology, volume or other constraints) to comply with local sourcing norms.

The policy does exempt compliance for the first three years for products having state of the art or cutting edge technology, and where local sourcing is not possible; a committee will determine whether entities are eligible for such exemptions. However, in the absence of a well-defined formula and given the lack of precedents, potential investors remain uncertain if they are eligible for exemption.

Vishwanath Pratap Singh is a partner and Srabanee Ghosh is a senior associate at L&L Partners. The views expressed are personal and intended for general information purposes. They are not a substitute for legal advice.