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Single Brand Retail – Relaxation of Local Sourcing Condition

The Government of India (“GoI”) is actively considering relaxation of the 30% local sourcing requirement presently applicable to single brand retail trading ventures wherein foreign equity participation exceeds 51%.

The requirement of sourcing 30% of the value of products from small industries, village and cottage industries, artisans and craftsman was prescribed by the GoI in January this year while allowing foreign investment beyond 51% in single brand retail trading ventures in India. The condition has proved to be a major impediment for brand owners wishing to invest in India owing to concerns over availability and seriousness of small suppliers, quality control and protection of intellectual property rights.

GoI is considering whether to relax the sourcing requirement for all single brand retailers, or to provide for GoI to relax the condition on a case to case basis, if the foreign investor establishes technical or practical impossibility of sourcing whole or part of its products from small suppliers.

The relaxation would make life easier for the investors. The policy would, however, require additional clarifications, inter alia, on some of the other issues highlighted in our newsletter of January 11, 2012.