Amid sharp divisions between two ministries on relaxingsourcing norms for FDI in single brand retail, Indian Union Minister VayalarRavi has shot off a letter to the Prime Minister cautioning that easing of 30per cent procurement requirements will lead to dumping of cheap imported goodsin the country.
"If there is any relaxation in this norm, itself, itwould lead to major upsurge in cheap imported goods, which are being made innon-transparent economies where direct and indirect subsidy regimes coupledwith currency controls, which ensure unfair exports to third countries,"Ravi, Minister for Micro, Small and Medium Enterprises (MSME), said in hisletter.
Any dilution of this norm, is therefore, fraught withadverse economic as well as political consequences, he added.
In a bid to accommodate demands of Swedish furniture chainIKEA over sourcing norms for FDI in single brand retail, Department ofIndustrial Policy and Promotion (DIPP) has proposed allowing foreign retailersto procure from large Indian firms as well.
On the other hand, Micro, Small and Medium Enterprises(MSME) Ministry has suggested that foreign retailers be allowed to source fromMicro and Small Enterprises (MSEs)only.
Besides, the ministry said a foreign retailer could be givena period of seven years even after the units have grown in size and exceededthe stipulated USD one million investment limit in plant and machinery.
Commerce and Industry Minister Anand Sharma is likely tomeet Ravi on Thursday to thrash out divergences on sourcing norms related toFDI in single brand retail.
Ahead of the meeting, DIPP Secretary Saurabh Chandra and hisMSME counterpart R K Mathur discussed ways on how to address issues raised overthe mandatory 30 per cent sourcing norm, specially those raised by IKEA, whichplans to invest Rs 10,500 crore in India.
"DIPP has proposed that 30 per cent sourcing will bedone by foreign retailers from Indian units, including large ones, butpreferably from micro, small and medium units, where it is feasible," asource said.
Another source said MSME Ministry, however, preferred tostick the sourcing to only MSEs but was open to relaxing clauses related tosize of the units.
"If a micro or small unit grows in size and crosses thedefined threshold, as a result of becoming a supplier to a foreign retailer, itmust still be considered as sourcing from MSEs for a period of seven years fromthe date of first transaction," a source said citing MSME Ministry'sproposal.
IKEA had asked the government to allow it to continuesourcing from small units even after the vendors have crossed the mandatory USD1 million investment limit and become large set-ups.
In his letter, Ravi, however, said "Government canalways give a relaxation that if small units have grown bigger, sourcing fromsuch units would still be considered to be sourcing from small industry."
"Surely, it is not in the interest of our country tokeep the small industry, small. As a country, we should be happy to see smallindustry grow and become globally competitive," he added.
The Swedish firm had also said the calculation of the 30 percent norm be done for cumulative periods of 10 years of operations startingwith the approval of the present application.
Sources said this demand could also be partially met bytweaking the conditions.
"Initially, if the foreign retailer cannot buy 30 percent of its total requirement from MSEs in one year, it can be allowed to makeup the shortfall in the next year. After two or three years, the foreignretailers would be required to meet the annual sourcing target over and abovemaking up for the shortfall in previous years," a source said.
According to the present FDI Policy on single brand retail,mandatory sourcing of at least 30 per cent of goods sold would have to be donefrom Indian small industries /village and cottage industries, artisans andcraftsmen, annually.