India finally eases entry for foreign brands

Dubai: A bit of patience is now paying off for all those foreign brands that wanted to get into India but were yet to make up their minds as to when. Like Apple, for instance.

The tech giant announced will start selling directly through its own online store after the Indian government eased requirements on foreign retailers setting up such stores. Until Wednesday, they could do so only if they had already set up a brick-and-mortar presence in India. Now, they can launch online sales and only need to open a physical store within two years. The move by the government is part of a series of reforms whereby it tries to jump-start a faltering economy in which key sectors such as automotive, services and retail were hurting.

These reforms, the government reckons, will also get investments flowing back into the system and eventually lead to job creation. Until now, the government had been taking gradual steps to ease foreign entry into retail, both in the physical space and online. Among the requirements was that any foreign retailer coming in has to commit to sizeable sourcing arrangements — up to 30 per cent — within the country. Amazon, for instance, has to adhere to some of the strictest requirements on sourcing and listing of merchandise anywhere.

But with Wednesday’s announcement of the reform update, it shows a government willing to make changes. Businesses will now be more than willing to meet these reforms halfway.

Not just Apple, any overseas retailer eyeing a chance in the Indian retail space can make an attempt online before committing to the far higher expenses on launching a physical presence. A UAE-based brand, for instance, could now think of an Indian presence as a natural extension rather than a marketplace with significant entry barriers.

Awaiting a spike in foreign fund flows

“Giants such as Apple have, so far, been opting for the franchisee route to fulfil the sourcing norms criteria in India and thus struggling to open their own physical stores,” said Anuj Kejriwal, Managing Director and CEO at Anarock Retail. “Now, with the ease in sourcing norms coupled with the decision to commence online sales before starting a offline presence, they will set to gain.

“It is another step towards ease of doing business in India. With more clarity, many such players can make their foray into India to tap into the large Indian consumption potential.”

Retail is where the action is

According to official data, India’s retail sector saw investments double to $180.18 million in 2018. Impressive on the face of it, but nowhere near the actual potential. Now, industry sources say, is the time to correct this.

“With the US-China trade war unabated, India could be the best possible alternative for global firms, offering them operational efficiency and scale,” said Niranjan Hiranandani, Vice-President of the business grouping Assocham. “There would also be a multiplier effect on related sectors like commercial real estate.”

Multi-brand retail

But the real Big Bang makeover for India Retail is when the government rolls back all restrictions on allowing multi-brand retail. Right now, this is a closed space in many ways. Which is why Siddarth Razdan, Director — Offshore at Indianivesh Fund Managers, said: “The current announcement is only incremental. Opening multi-brand retail in full to FDI (foreign direct investments) is pending.

“Currently, FDI can be up to 49 per cent and with many restrictions. So, the Big Bang will be when this comes without any restrictions.”

Will India Govt. take that leap?

What has changed from Wednesday

Retail — The Indian government relaxed FDI norms in single-brand retail and expanded the definition of mandatory 30 per cent domestic sourcing norms. The announcement allows single-brand retailers to start online sales, effectively doing away with the previous condition of first setting up a mandatory brick-and-mortar store. This will significantly ease capital pressure on small retailers who are looking to start afresh, according to Anarock commentary.

Media — For the first time, an FDI cap — of 26 per cent — has been set for inward investments into India’s digital news media. This sector was not covered under any foreign investment rules so far.

Coal — Full foreign ownership under the automatic route will be allowed in contract manufacturing and commercial coal mining.