New FDI norms may help domestic retailers as contractors get manufacturer status: Report

Retail (Representative Image)

Domestic retailers may get a boost with new foreign direct investment rules allowing contractors to the status of “manufacturer”, giving them access to 100 percent FDI, reports the Economic Times.

The rules may come as a relief for brands such as Fabindia and Urban Ladder, which depend on third-party sourcing for their products. They would be able to raise foreign funds to expand the business, the report said.

Fabindia Vice Chairman William Bissel praised the move as positive for all Indian brands. "With yesterday's (August 28) announcement, the government has scored a hat trick, which will be good for 'Make in India', employ in India, and invest in India," Bissel told ET.

Since 2006, India has allowed 100 percent FDI under the automatic route in single-brand retail and 112 brands had obtained approvals till March 29, 2018. They have received $1.6 billion in investments so far, the report said.

"The logical extension of this norm means that the move will benefit such private labels from being single-brand retailers to manufacturers," Ajay Bahl, founding partner of law firm AZB & Partners, told the newspaper.

Urban Ladder co-founder and CEO Ashish Goel described the move as helpful. "We do get a lot of stuff manufactured in India and this can be helpful for us. We are keen to support Indian manufacturing and plan to manufacture furniture ourselves as well," Goel said.

Experts feel that the move will benefit global brands in India and also help Indian labels become internationally competitive.

"Homegrown brands that rely significantly on third-party manufacturing will be treated akin to manufacturers and hence can raise more foreign capital to grow their retail footprint. Besides foreign investments, more tangible benefits to the country should come by way of increase in manufacturing activity," Akash Gupt, partner at PwC, told ET.