India Regulatory Brief: FDI Policy for Single-Brand Retail Relaxed, Regulatory Environment Scrutinized
Government Relaxes FDI Policy for Single-brand Retail
The government has relaxed FDI norms in 15 sectors. The policy revision will now allow single-brand retail firms to sell directly online if they have an established brick and mortar store. According to guidelines released by the Department of Industrial Policy and Promotion (DIPP), 30 percent of the value of goods purchased must be sourced from the opening of the first store. Presently, single-brand retail is allowed only 49 percent in FDI; this may be raised up to 100 percent if the government approves.
The regulatory changes are a welcome reform for international single-brand retailers like Marks & Spencer, Adidas, Reebok, IKEA, Apple and others who can now pursue e-commerce strategies independent of the online marketplace (Flipkart, Snapdeal), and without having to compromise on pricing and promotional events. Additionally, Indian retail firms that have foreign investors will now be allowed to sell online upon the condition that 30 percent of their output is sourced from locals. Indian companies that manufacture their products in India will also be allowed to sell online without seeking any permits.
Government Defines ‘Manufacturing’ to Provide Clarity
The Department of Industrial Policy & Promotion (DIPP) has spelt out the term ‘manufacturing’ to provide clarity to firms and the e-commerce industry. The move will definitely boost the government’s Make in India initiative, and propel growth in the Indian manufacturing sector.
Manufacturing, as defined by the DIPP, is “any change in the physical object resulting in transformation of the object into a distinct article with a different name or bringing a new object into existence with a different chemical composition or integral structure”. This will benefit companies that assemble products in India such as in the automobile and telecom sectors, but not firms that process or re-label products who will not qualify as manufacturers. As per FDI norms, foreign investment in manufacturing is automatically approved, and companies are allowed to sell products through wholesale and retail routes, including e-commerce, without restriction.
Doing Business Rankings: States in India to Face Greater Scrutiny
States in India will face greater scrutiny from the Department of Industrial Policy and Promotion (DIPP) on the ease of doing business reforms. The DIPP has sought to make the process competitive, and starting from December, states and union territories will also be ranked on the rate and quality of implementation of reforms. This initiative is part of the Business Reform Action Plan 2016.
The rankings will be displayed on an interactive dashboard on the DIPP website. Every month, the site will be made accessible to companies for a week to verify claims made by the state, and provide feedback. The DIPP lists eight categories of business reforms where states are ranked on a total of 340 parameters, including setting up a business, allotment of land and obtaining construction permits, complying with environmental procedures, complying with labor regulations, obtaining infrastructure-related utilities, registering and complying with tax procedures, carrying out inspections and enforcing contracts.
This year’s assessment was assisted by the World Bank, which saw the state of Gujarat top the rankings, followed by Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh. India ranked 130 this year, according to the annual evaluation by the World Bank on the ease of doing business.
Swiss Ambassador Criticizes Regulatory Framework
The ban on Nestle’s Maggi noodles sends a “disturbing message”, according to Swiss Ambassador to India Linus von Castelmur. The ambassador further stated that Swiss companies that are already invested in India, or want to invest in the country, may consider other competitive markets as the regulatory framework in India was not clear and consistent. Maggi was banned for five months after food safety regulators stated that the product contained lead beyond the permissible limit. The noodles re-launched in the Indian market on 9 November after the Bombay high court lifted the ban after accredited tests. Maggi, however, was not banned from other markets around the world.
Castelmur further stated that the ban was not justified and that authorities should work on providing clear regulations for implementation. Food Processing Minister Harsimrat Kaur Badal stated in a media interview that Food Safety and Standards Authority of India (FSSAI) needs to follow international standards to monitor products, and further stated that the regulatory body needs to spend more time monitoring products for deficiencies. A recent Supreme Court order stated that FSSAI product approval for items such as noodles must be ceased. The FSSAI is now working on guidelines and regulations so that that a similar Maggi recall can be avoided in the future.
RBI Expected to Control Policy Rates
The Reserve Bank of India (RBI) is expected to control its policy rate at 6.7 percent in the week of November 30th to suppress inflation. The RBI is focused on inflation, and has made predictions on consumer price inflation, which it expects to hit 5.8 percent in January 2016. Earlier this year, inflation came down to 3.6 percent but went up again to 0.5 percent in October.
The RBI has cut interest rates four times this year. Analysts expect the U.S. to hike its interest rates soon, and the RBI is taking a precautionary measure, though India is expected to suffer less from capital outflows as compared to the most emerging markets.
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