FDI in retail: Govt to tweak MSME definition for IKEA investment
India on Saturday said it is working on revising the definition of small and medium enterprises to help them meet the MSME criteria while catering to foreign retail players.
Colombo: India on Saturday said it is working on revising the definition of small and medium enterprises to help them meet the MSME criteria while catering to foreign retail players.
IKEA, world's largest furniture maker, which proposes to undertake large investments in India has demanded flexibility in the clause that makes it mandatory for retailers to source 30 percent of their inputs from domestic small and medium enterprises.
" Once the Indian SMEs are engaged with them, the definition will require a change because you have a SME and you have global majors taking from you. So when you are selling this kind of material to a global major, then you may not remain a SME under the present definition," Commerce and Industry Minister Anand Sharma told reporters here
"In one year, you may double revenue and profit, so therefore a definition..It is a continuous process, it has to keep on evolving. The concerned department will discuss and change...," he said.
SMEs are defined as enterprises that have invested up to USD 1 million in plant and machinery. IKEA has said that it should be allowed to continue sourcing from its vendors even after they cross the USD 1-million investment limit.
In June IKEA had filled the application with the DIPP and had said if the group were to comply with this norm, such units will very soon outgrow the stipulated valuation (of USD 1 million) and become large set-ups.
The retailer has also demanded that the 30 percent domestic sourcing limit should be viewed for a cumulative period of 10 years of operation.
"The guidelines will have absolute clarity. The Department of Industry Policy and Promotion (DIPP) is currently working on guidelines," Sharma said.
"What I am saying is you cannot punish a SME for performing well because next year they will not be able to sell and become unproductive SMEs after two years," Sharma said.
Earlier this year, India hiked the FDI cap in single-brand retail to 100 percent from 51 percent, subject to the domestic sourcing clause.
Following this, it received application from Uk-based show company Pavers England and Swedish home products IKEA. IKEA has proposed to invest Rs 10,500 crore to set up single brand retail stores in India.
Owing to the restriction contained in the FDI policy, such small industries may lose out on vast volumes of business from the Group, IKEA said.
Moreover, it said that if the company would keep on changing its vendors, such abrupt change would also disrupt the quality of the products that would be released in the market and also the supply chain operations of IKEA group.
"The biggest impact would be on the small industries themselves as, if IKEA group stops doing business with such enterprises, several such industries using IKEA Group's designs and expertise would have to close down and hundreds, if not thousands of workers will be rendered unemployed," the company said in its application.
It said that the company cannot be expected to keep changing its local vendors as it will gravely impact the supply chain, product quality, product cost and consequently the revenues of the company.
Ikea's proposal comes at a time when the DIPP is considering relaxing the 30 percent sourcing norms as other brands like Apple and Rolex may not be able to meet the requirements.