DPIIT clarifies sourcing of goods norms from SEZs – for Single Brands Retail Trade (SBRT)
Indian Government to attract foreign direct investment (FDI) eased FDI norms for SBRT in the year 2019 vide Press Note 4 (2019). The press note allowed the foreign SBRT companies to first set up their own online stores in India and later follow it up with the setting up of physical stores – for which the time period given was two years from the date of opening up of online stores. However, there was a condition attached to the opening of the online stores which required complying with the local sourcing norms. SBRT with foreign investment beyond 51% holding were required to locally source 30% of the value of the goods sold. The provision/s to assess the sales was widened to include both the Indian domestic sales and goods exported from India.
The DPIIT based upon numerous representations has clarified the issue relating to procurement of goods from companies operating in Special Economic Zone (SEZ). The DPIIT while clarifying “Whether procuring goods from units located in Special Economic Zone/s (SEZ) would qualify as 30% local sourcing from India, as per FDI Policy?” has confirmed, sourcing of goods from units located in SEZs in India by the SBRT qualifies the 30% norm. The government has further clarified a) that the goods that an SBRT propose to source must be manufactured by SEZ’s in India b) the compliance of conditions enumerated in the FDI policy and as notified under the Foreign Exchange Management Act, 1999 (FEMA) would continue to be responsibility of SEZ.
The clarification on local sourcing norms by the Indian Government provides better vision for the SBRT entities enabling them to comply with ease the local sourcing norms as per the FDI policy. The policy has rightly balanced the manufacturing requirement in India while allowing sourcing from SEZ. The clarification will hopefully give an impetus to the manufacturing activity in India making it the destination/hub to source global requirements.