RELIEF LIKELY FOR GUCCI, LVMH, APPLE - 30% Rider on Single Brand may Go 100%

  The government may completely unshackle foreign investment in singlebrand retail, a sector that has seen growing interest from the world's biggest brands that have been lobbying for the scrapping of a condition they regard as a deal breaker. Their wish could come true. The department of Industrial policy and promotion (DIPP) is considering a move to scrap the 30% domestic sourcing clause, which could result in higher foreign direct investment (FDI) inflows. This has been viewed by many luxury firms such as LVMH and Gucci as a stumbling block as they argue that it is difficult to source high-end goods locally. "How can luxury brands source 30% from India? It is simply not possible. Single-brand retail policy needs to be eased to allow foreign brands to invest in the country . We are working on that right now," said a DIPP official. Such a move would also free up companies such as Ap nies such as Ap ple to open wholly owned stores in India. More than . 300 crore has ` come into this segment from overseas in the last two years, s in a depressed generating jobs in a depressed economy . The previous government allowed 100% FDI in single-brand retail in 2011 with mandatory 30% sourcing from small and medium enterprises. However, in September 2012, the government tweaked the 30% mandatory sourcing norm for FDI in single-brand retail to accommodate Swedish furniture maker Ikea, changing it to something that was preferable rather than mandatory. However, there is still a lack of policy clarity for many companies, with their applications having got stuck at DIPP for months. The move to completely free up single-brand retail will ease entry for brands such as Swarovski, which have had applications rejected as they wanted to house both formats — cash and carry and single-brand retail — together. India allows 100% overseas investment in both, while restricting it to 51% in multi-brand retail with conditions attached. DIPP asked the companies to apply separately for both. Otherwise the 30% sourcing rule would apply for the cash and carry operations as well. "Most single-brand retail companies that have applied have asked the government to do away with the 30% domestic sourcing requirement, saying this cannot be implemented. Even if they source domesti cally, there is no supervision. So after five years they could be prosecuted for non-compliance, which will create a difficult situation," said Diljeet Titus of the law firm Titus and Co. He said luxury brands make a limited number of pieces, maybe 100 or 1,000, and change product lines often, which makes it impossible for them to comply with the domestic sourcing requirement. "In fact, a lot of Indian real estate companies, which would cater to singlebrand players, have also requested the government to do away with this hurdle of 30% domestic sourcing to let more FDI flow in," he added. The government is also considering a plan to allow single-brand retailers to bring in sub-brands or sell under different trademarks. The 30% sourcing condition has also been seen as impacting investments by technology companies such as Apple as any overseas company looking to own more than 51% of a single-brand retailing venture would have to comply with the norm. "This (removing the 30% sourcing norm) would be a positive move as companies have been slowly and steadily increasing single-brand presence in India, especially in apparel and footwear brands," said Abhishek Malhotra, a partner with consulting firm Booz & Co. "This should make it possible for companies like Apple to open stores. We should see more such companies coming in. This was a hurdle for such companies and luxury retailers."