India procurement for global operations may be counted for local sourcing obligations

NEW DELHI: Multinational retailers such as Ikea and H&M could soon enjoy easier sourcing norms with government planning to relax the conditions for 30 per cent mandatory local purchase for their Indian retail operations.

The industry department is finalising a proposal that will allow foreign companies to count the procurement they do for their global operations from India as part of their local sourcing obligations.

The current policy stipulates that any foreign retailer who owns more than 51 per cent of its Indian arm will have to locally source ‘30 per cent of the value of goods purchased’ for its domestic operations.

The department of industrial policy and promotion ( DIPP) is drafting guidelines which will provide relief to global retailers.

Ikea and H&M have earlier requested the government to allow them to offset the condition of minimum 30 per cent sourcing against their overall global sourcing from India. In 2013, the department of industrial policy and promotion had disallowed Ikea from doing so.

“Sourcing of the Ikea entities from India or the Indian entity of the Ikea Group, cannot be included for compliance of Ikea India,” a DIPP note had stated.

But, under the new commerce and industry minister Suresh Prabhu, DIPP appears amenable to this change. “We are very keen to go ahead with this policy change… These companies have been sourcing for years from India for their global markets so it makes sense to count that when we are talking of local sourcing for single-brand retail,” a government official told ET.



Long-term Objective
The official added that the move would not only increase ‘ease of doing business’ but also spur job growth in the economy.

H&M, a fully-owned subsidiary of the world’s second-largest fashion retailer which entered India 18 months ago, already operates about 21 outlets and plans to open more than 25 stores by the year-end. Ikea plans to open its first India outlet in Hyderabad in April 2018.

The company has been sourcing from India for more than 30 years. It has around 50 suppliers in India with about 45,000 employees directly involved in the production of Ikea products. The company says its long-term objective is to maximise local sourcing.

“We don’t see 30 per cent as a goal for our sourcing but aim higher than that. The long-term objective is to maximise local sourcing from India, even beyond 30 per cent to be able to offer more affordable products to Indian customers,” said Patrik Antoni, deputy country manager, Ikea.