Single brand retail FDI rule may be eased.

New Delhi: In order to accommodate Swedish furniture giant Ikea’s demands, the commerce and industry ministry is softening its stand on the sourcing norms for foreign firms to invest in single-brand retail in the country.

According to officials, the government has now diluted the clause relating to mandatory sourcing from small and medium enterprises (SME) to mean that foreign investors in single-brand retail need to “primarily” source from SMEs.

As per the current policy, global retailers would have to source 30% of their requirement from Indian small industries. The dilution means when foreign firms choose Indian firms for sourcing requirements, preference should be given to SMEs.

“The policy is to promote investment and not SMEs. The sourcing has to be done from India, but preferably from SMEs,” a ministry official said.

The dilution of stand comes at a time when the ministry of micro, small and medium enterprises (MSME) has categorically ruled out any change in the definition of SMEs to help foreign retail brands set shop in the country. The change will also open the floodgates for other potential foreign investors who are waiting for clarity on the issue.

The Centre had earlier ruled out easing any norms. “We are not talking of any dilution. We are talking of clarity. We are very clear that 30% of the sourcing has to be from India primarily from MSMEs. The policy is meant to attract investments. As long as the sourcing is from India, I am not going to get into any quarrel over technicalities,” commerce and industry minister Anand Sharma said.

Sharma said that major retailers in single brand are already sourcing from India and that Ikea is sourcing products worth 1 billion euros from India mainly from handloom and carpet clusters. Besides, the department of industrial policy and promotion (DIPP) has said that though the government may not dilute the foreign direct investment (FDI) policy for single-brand retail, a special dispensation could be made for Ikea which has committed to invest R10,500 crore.

On the sourcing norms, the ministry had earlier this year said: “We have now allowed foreign investment up to 100% with the stipulation that in respect of proposals involving FDI beyond 51%, there will be mandatory sourcing of at least 30% of the total value of the products sold would have to be done from Indian small industries/village and cottage industries, artisans and craftsmen.”

SMEs are defined as units that have invested up to $1 million in plant and machinery and reports suggested that Ikea wanted to be allowed to comply with the condition over a period of 10 years besides continuing to source from its vendors even after they cross the $1 million mark.

Source : financialexpress.com