Sourcing clause to deter foreign cos

The government’s decision to completely open FDI in single brand retail is unlikely to have any significant change as foreign firms will be deterred by the 30 per cent sourcing clause, say industry players.

Moreover, existing partnerships of foreign companies with local partners in India may not be majorly impacted, as they would adopt a wait and watch policy as “the government has a record of announcing something and backtracking on it.”

“Despite the change in law, foreign brands will not simply break off with their local partners. Partnerships will not suddenly change just because 100 per cent FDI is now allowed in single-brand retail,” Reliance Brands President and CEO Darshan Mehta said. Stating that India remains a complex market, he said the restriction to source 30 per cent from villages and cottage industries would make it impossible for those brands, which are looking to enter India on their own.

Ikea, one of the major global furniture brands that has insisted on entering India on its own, however, said: “India is a very interesting potential retail market for IKEA. We will now evaluate the guidelines of the FDI decision in India and we hope to be able to present more information shortly about establishing retail operations in the country.”

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