"The company had said that it cannot meet the mandatory 30 per cent sourcing norm and can procure only about 20 per cent from small units. But it has asked to reduce it to 15 per cent," sources said.
Walmart's demand comes after the government diluted the contentious sourcing clause last year to allow foreign multi-brand retailers that want to set up stores in India to procure 30 per cent of their products from small and medium enterprises only at the of start of business.
The Department of Industrial Policy and Promotion (DIPP), though, has clearly conveyed to Walmart that the government will not ease this clause, the sources said.
A Walmart India spokesperson said: "We continue to study the feasibility of the FDI policy and remain steadfast in our belief in the important value Walmart brings to India."
"Walmart is committed to India and the market. We are pleased with our established and successful cash-and-carry business and plan to grow that business," the spokesperson added.
The foreign direct investment policy for multi-brand retailing requires at least 30 per cent of the value of manufactured and processed products procured to be sourced from Indian small industries at the first engagement.
Several global retailers had raised concerns about the sourcing restriction.
The government allowed 51 per cent FDI in the multi-brand retail sector in September 2012. Only UK-based retailer Tesco has so far applied to open supermarket chains in India.
In October, Walmart and Bharti Enterprises ended a six-year partnership after agreeing to independently own and operate separate business formats in India and discontinue their franchise agreement in the retail business.