SME sourcing clause in retail FDI could change
exceeds the limit as they grow by supplying to foreign retailers, they have to be out of the partnership.
Foreign retailers are not averse to sourcing from SMEs. However, they complain that once they have invested in such companies, they would grow in size, making them ineligible to be a supplier. So, the retailers will have to routinely change partners, rendering their investment and training worthless. Acknowledging this fact, Sharma said: “I think they realised that India is a very important sourcing base and SMEs do play a role. Though when it comes to the definition of SME, we need to have a relook.”
A similar clause was present in the single-brand retail sector as well where the government allowed foreign firms to set up 100% subsidiaries against the earlier cap of 51%. However, when Swedish furniture maker Ikea, which was keen to invest in the country, pointed out the anomaly, the government amended the regulations. Thus, in single-brand, the “mandatory” 30% sourcing from SMEs has been changed to “preferably” and the clause on $1 million has been removed.
Asked why no foreign firm has shown interest in multi-brand retail when several have come forward in single-brand retail and two foreign airlines have expressed interest in aviation, Sharma said: “It was only in December that finality was reached in the Lok Sabha and the Rajya Sabha. Thereafter, there has been very enthusiastic response and interest. Now, business decisions have to be made by business people. We have allowed only 51%; so the big
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