SPOILT FOR CHOICE? Single brand retailers gear up for entry

New Delhi: Foreign single brand retail majors vying for an entry into India, came out in full support of the government's decision to dilute the sourcing norms in case of FDI in the sector. The government on Friday announced that for FDI beyond 51% in single brand retail, 30% sourcing will be done "from India, preferably from SMEs, village and cottage industries, artisans and craftsmen, where it is feasible." 

    The government had allowed 100% FDI in single brand retail last year with a rider that foreign brands would mandatorily have to source 30% of their requirements from SMEs. The government's move comes with a view to boost production capacities in the country by way of investments from these retail majors. "The fact that 30% domestic sourcing is being mandated would imply that the single brand retailers would have to build production capacities in the country, either in existing units, or set up new ones, catering specifically to their sourcing requirements. Hence, even the 30% domestic sourcing is expected to develop production capacities in the country," the government said in a statement. 
    "This is a very good move by the government. India's SME sector needs to grow. We support the decision that sourcing has to be done from India and 'preferably' from SMEs. Tomorrow, if large single brands from any sector come to India, they will anyways invest huge amounts in the country. If we also make sourcing from SMEs mandatory, we will only make things difficult for them," Utsav Seth, MD & CEO of Pavers England, said. 
    Pavers England, a premium British shoemaker, has been the first applicant to set up a wholly-owned single brand retail venture in the country. The company has a manufacturing and design facility near Chennai. The company is waiting for a go-ahead from the government to come up with its first outlet in India and plans to invest $20 million to come up with more stores. 
    The requirement to source from small industries had been proving to be an obstacle for foreign retailers including Swedish furniture maker IKEA, which is looking to enter the Indian market. IKEA, which has proposed to invest Rs 10,500 crore on retail stores in India, had sought tweaking of clauses related to the mandatory sourcing norm. 
    "We will now look into the details of this decision of the Indian government. We are positive to the development and remain hopeful that we will soon be able to set up our first store in the country, subject to approval of our application to the government of India," an IKEA spokesperson replied to an email questionnaire sent by TOI. 
    The company further said it firmly believes that its entry into the Indian market is a long term commitment when it comes to retail stores and development of the supply chain and sourcing. "India is a very interesting and important potential market for the IKEA Group and since long has been a very important purchase market for IKEA," the spokesperson said. The company sourced products worth approximately $450 million from India in 2011 and has growth plans to exceed $1 billion in the next few years.