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Sunday, May 19, 2024

Here’s why FDI approval is not required for Shein deal

Shein will license its technology and trademarks to Reliance Retail and establish an Indian e-commerce retail platform for Shein-branded items. The cooperation with RRVL might move 25% of Shein’s sourcing from China to India.

On Friday, government authorities said Chinese online fast-fashion retailer Shein would not need foreign direct investment (FDI) permission for its collaboration with Reliance Retail Ventures Ltd. as it will not own shares in the new operations. They said that Reliance Retail’s wholly-owned subsidiary will run the firm.

Shein will need press note 3 approval to invest in India, a 2020 FDI policy modification. The Centre amended the law to prohibit Chinese companies from exploiting indigenous firms amid rising Sino-Indian tensions. Investments from India’s land neighbors are now required.

“RRVL, an Indian company, will own and control the platform. The deal states that RRVL would build an Indian app with a wall between domestic and global apps. “Press note 3 would apply if Shein India invests,” stated an anonymous government official. “RRVL only bought the license and platform. “The company’s agreement states that profits from this subsidiary will be shared,” he continued.

According to Mint, India is planning to crack down on Chinese companies that form ties with Indian shell firms to get subsidies, especially in the rapidly growing electric vehicle market. The Department for Promotion of Industry and Internal Trade is monitoring Chinese automakers with suspected Indian proxy partners.

The organizations have no strategic ambitions to create capabilities in India. The platform and servers would be in India, so user data will not be transferred beyond India, a government official said.

“Localization of Infrastructure and Platform data are aimed to ensure that the collaboration with Shein will always be compliant with applicable Indian laws and strategic interest of the country,” the official stated. The cooperation with RRVL might move 25% of Shein’s sourcing from China to India.

“This will create a potential export opportunity of approximately 50,000 crore from India, even if only 25% of Shein’s global demand is sourced from India,” the official added.

Readymade garment (RMG) exports fell 23.10% to $1,210.66 million in April 2023 due to a market slowdown in western nations. In April 2023, exports of cotton yarn, textiles, made-ups, and handloom items fell 23.42 percent to $887.89 million from $1,159.49 million in the previous year.


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