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Thu 29 Aug 2019 01:59 PM

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India's FDI rule changes likely to attract more high tech, luxury brands

India will allow single brand companies to start online sales in India before they set up their brick and mortar stores which could be opened within two years

India's FDI rule changes likely to attract more high tech, luxury brands
A branch of luxury goods retailer Gucci

Several leading international high tech and luxury fashion brands such as Apple, Gucci and Louis Vuitton are expected to either set up exclusive webstores to sell their wares directly to Indian customers or source materials from India through third party manufacturing for their global operations, after India relaxed norms for foreign direct investment (FDI) in single brand retail and contract manufacturing, retail industry experts have said.

India announced on Wednesday that it will allow single brand companies to start online sales in India before they set up their brick and mortar stores which could be opened within two years.

In a bid to attract the likes of Apple to set up manufacturing facilities in India, the Indian government has also relaxed the stringent 30 percent local sourcing norm for single brand retailers with majority foreign ownership.

These companies can now achieve sourcing 30 percent value of goods sold in India based on a 5-year average in the initial 5-year period.

India has also allowed 100 percent FDI in contract manufacturing, a move, according to Industry experts, is expected to attract companies from around the world, including the Middle East, to set up sourcing facilities in India.

“The move on allowing single brand retailers to start online sales before they set up their offline stores, as also relaxing the 30 percent local sourcing for them will lead to several high tech and luxury fashion brands seriously making plans now for entering the Indian market,” Akash Gupt, Partner, PwC India, told Arabian Business.

“These relaxations will help them to get more time to plan out their sourcing strategies and local partners,” he added.

High tech brands such as Apple and luxury brands such as Louis Vuitton and Gucci could be among the single brand retailers who are expected to enter the Indian market with their own exclusive webstores or to source materials from India through contract manufacturing for their global operations, Gupt added.

Apple currently has online partnerships with Amazon, Flipkart and Paytm Mall in India to sell its products through authorised third-party sales.

Industry sources said several global single brand companies, especially high tech companies have been pushing Indian government to allow toll manufacturing for some time now, as they wanted more control over quality and production standards, besides guarding their patented technologies.

“Unlike contract manufacturing where a third party manufacturers undertakes the entire operations from sourcing raw materials, hiring employees and manufacturing, toll manufacturing allows international companies to get greater control over raw materials, quality and production standards,” Rahul Garg, a tax expert with PwC India, told Arabian Business.

Garg, however, said authorities need to spell out whether there will be any tax implications for foreign companies in case of toll manufacturing if government is keen on attracting foreign investments in toll manufacturing.

Akash Gupt said the decision to allow 100 percent FDI in contract manufacturing is expected to see emergence of several private labels in India, as home grown producers of these labels can now raise foreign funding for their expansion plans.