Anand Sharma, Vayalar Ravi to meet today to iron out issues
MSME ministry favours 7-yr window for sourcing even if vendor outgrows MSME tag
The ministry of micro, small and medium enterprises (MSME) has softened its stance on sourcing requirement for foreign direct investment in single brand retail, amid demands to that effect by Swedish furniture major IKEA.
However, the ministry has stuck to its position that it will not allow any change to the definition of MSME.
The MSME ministry gave this indication at a meeting between its secretary R K Mathur and his counterpart in the department of industrial policy and promotion, Saurabh Chandra, sources told Business Standard.
The meeting was a precursor to a meeting between Commerce and Industry Minister Anand Sharma and MSME Minister Vayalar Ravi tomorrow to discuss and resolve the impasse over the mandatory 30 per cent sourcing from MSME by foreign brands in the single-brand retail space.
During the secretary-level meeting, the MSME ministry took a stand that it would allow foreign companies to continue sourcing for a specified period even if the MSME companies concerned become bigger, and not stay within the MSME definition. “The two ministries discussed that in case a small company becomes bigger, the foreign companies concerned would be given seven years to continue sourcing. During this time, they will have to identify the smaller company that they would shift to after the seven years,” said a government official.
IKEA’s demand that sourcing be calculated over 10 years and not every year has also found a positive response from the two secretaries.
The important point would be to source 30 per cent from small and medium enterprises. In initial years, it would be difficult to do this. But foreign firms can make up for it in the later years. “It is only practical, as one cannot find vendors overnight,” the official added.
However, the MSME secretary did not relent on the demand for redefining the MSME definition as they were of the view that the foreign firms should function in India in the given framework and should not expect complete dilution of rules or definitions for a foreign firm.
The MSME secretary favoured that 30 per cent sourcing norms should hold.
Ravi has already shot off a letter to Prime Minister Manmohan Singh that 30 per cent sourcing norms in general not be done away with. “If there is any relaxation in this norm, itself, it would lead to a major upsurge in cheap imported goods, which are being made in non-transparent economies where direct and indirect subsidy regimes, coupled with currency controls, which ensure unfair exports to third countries,” the letter said.
MSME are companies with investment of Rs 25 lakh to Rs 10 crore in plant and machinery.
IKEA plans to invest Rs 10,500 crore to set up about 25 stores in India.
Earlier, the government had allowed hiking FDI in single brand retail to 100 per cent from 51 per cent, while putting on hold another Cabinet decision to open multi-brand retail to 51 per cent FDI.