DPIIT clarifies on goods sourcing by single brand retailers from SEZ units

In a clarification to Single Brand Retail (SBR) entities, the Department for Promotion of Industry and Internal Trade (DPIIT) said that goods sourced from special economic zones (SEZ) by single-brand retailers involving FDI beyond 51% would qualify as sourcing from India.

"..it may be clarified that sourcing of goods from such units would qualify as sourcing from India for the purpose of 30% mandatory sourcing from India for proposals involving FDI beyond 51%, subject to SEZ Act, 2005,", said the DPIIT in a clarification circular.

The govt also said that goods proposed to be sourced by an SBR entity from such units have to be manufactured in India.

The circular comes after single-brand retailers sought clarification on whether sourcing of goods from units located in Special Economic Zone

(SEZ) would qualify as sourcing from India as per FDI Policy.

Sourcing of goods from SEZs is treated as imports, according to customs law.

As per FDI policy implement in 2018, 100 per cent foreign investment is permitted but with 30% of the value of the goods sold from the country. This sourcing requirement is currently mandatory for first five years preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors.

The govt has also been pushing the sector to attract more brands towards India. The govt mulls to change with the volume of the investment. If retailers invest $100 million, then they will get 6 years to meet the norms.

In case the investments are beyond $200 million or $300 million, the retailers will get 8 and 10 years.

In July last year, Union Finance Minister Nirmala Sitharaman had emphasised on easing the local sourcing norms for FDI in single-brand retail. Commerce and Industry Minister Piyush Goyal had also highlighted on improving local sourcing norms.

The govt had also allowed an SBRT entity operating through brick and mortar stores to undertake retail trading through e-commerce. However, it is bound by the condition clause that the entity must open brick and mortar stores within two years from the date of start of online retail.