India’s government is considering freeing up its FDI policies in the retail sector for domestic manufactured goods. The prospective policy applies to offline and online retail and eases the existing restrictions on companies such as Wal-Mart, Tesco and Amazon, as long as it involves sale of goods made in India, according to the Economic Times. In other words, this could be part of the flagship Make in India programme to promote manufacturing in the country. The policy is expected to be announced after the crucial assembly elections in five states are out of the way by March 2017.
Although FDI is permitted in the retail sector in India, there are a lot of policy conditions. Fifty-one percent FDI is allowed in multi-brand retail. However, a minimum investment of $100m must be brought in, out of which 50% must be invested in back-end infrastructure and 30% of goods have to be procured from micro and small enterprises. Cash-and-carry or wholesale trade can be wholly foreign-owned.
Single brand retail has a 100% FDI allowance but proposals involving more than 51% foreign investment entail a 30% local sourcing requirement. E-commerce can be wholly foreign-owned if the company functions only as marketplaces and does not sell goods on its own account.
In the union budget for 2017-18, the Indian government stated that it would further liberalise the country's FDI regime. Providing a level playing field for online and offline retail is a step in this direction.
Amazon has recently submitted a proposal to set up brick-and-mortar stores in India to sell locally made food products alongside its online platform. Locally processed food products are now permitted to be sold both offline and online. Manufactured goods are next in line.
“It has been proposed that FDI restrictions in retail be lifted to the extent of goods manufactured in India,” stated a senior official to the Economic Times, adding that “the matter will be deliberated in the near future".
The current policy, however, allows domestic manufacturers to sell their goods both online and offline. Allowing more foreign ownership in retail to distribute manufactured goods is one more step towards liberalising India’s FDI regime.