More reports on: Retail

FDI in retail subject to 30% sourcing from MSMEs

29 August 2017

The consolidated foreign direct investment policy document released by the Department of Industrial Policy and Promotion (DIPP) of the commerce ministry on Monday states that for foreign direct investments in retail business at least 30 per cent of the value of procurement should be made from Indian micro, small and medium industries (MSMEs).

MSMES are those units that have a total initial investment in plant and machinery not exceeding $2 million.

This valuation refers to the value at the time of installation, without providing for depreciation. The 'small industry' status would be reckoned only at the time of first engagement with the retailer, and such industry shall continue to qualify as a 'small industry' for this purpose, even if it outgrows the investment of $2 million during the course of its relationship with the said retailer.

Sourcing from agricultural co-operatives and farmers co-operatives would also be considered in this category.

The procurement requirement would have to be met, in the first instance, as an average of five years' total value of the manufactured / processed products purchased, beginning 1 April of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis.

The government, meanwhile, set up a committee under Ramesh Abhishek, secretary, Department of Industrial Policy and Promotion (DIPP), to decide on requests for waiver of the 30 per cent local sourcing norms by foreign single brand retail companies planning to set up branded stores in India and claiming to have products with state-of-the-art and cutting-edge technology.

The committee will comprise representatives of NITI Aayog, officials from the concerned ministries and independent technical experts.

Last year, a similar informal committee, headed by the DIPP secretary without technical experts, had recommended waiving the local sourcing norm for Apple Inc to allow the company to open its own branded stores in India but the proposal was rejected by the finance ministry.

On the other hand, an e-commerce entity is permitted to source only up to 25 per cent sales through one of its group companies. In the consolidated policy, DIPP clarified that ''sales'' will be calculated based on value (not volume) of items sold on a financial year basis.

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