Definition of MSME to be expanded

Restriction on cities for opening stores will be eased; Back-end infra investment from initial $100 mn

In a bid to lure international retailers, the government plans to revise the definition of micro, small and medium enterprises (MSME) and allow retail chains to procure from them even if they exceed investment of $2 million in plant and machinery. Currently, the MSME definition refers to an investment threshold of $1 million.

The move is likely to come up in the Cabinet Committee on Economic Affairs (CCEA) meeting on Thursday. The multi-brand foreign direct investment (FDI) policy states that retailers must purchase 30 per cent of the value of procurement of manufacture and processed products from MSMEs. It also states that at any point, if the MSME exceeds the valuation, it will not be called a ‘small industry’ anymore and will not get any sector-specific benefits. That is about to change, if the Cabinet approves the revised definition.

An official in the Department of Industrial Policy & Promotion (DIPP) said the government may also announce easing of norms for back-end infrastructure investment. Ever since the policy got notified in September 2012, retailers were not clear whether 50 per cent investment towards back-end infrastructure would have to be made from the mandatory minimum initial investment of $100 million or from the total amount that will be brought in by the investors subsequently.

Back-end infrastructure refers to packaging, logistics, storage and ware-house among others.

The tweaked policy is likely to state that 50 per cent investment in back-end infrastructure will be “restricted only to the first tranche of $100 million, while subsequent investments into back-end will be decided by the retailer”, said the official.

However, the Cabinet note prepared by DIPP does not mention whether a foreign retailer must invest to create new infrastructure or if they could put money in the existing back-end infrastructure of an Indian partner. Also, retailers will now be allowed to open stores in all states that have agreed to implement FDI in multibrand retail, even if such states do not have cities of more than one million population.