If the government agrees to grant this time, then the department of industrial policy and promotion (DIPP) will have to modify the extant foreign direct investment (FDI) policy and again seek Cabinet approval, officials said.
Currently, the multi-brand retail policy for foreign direct investment stipulates that at least 30% of the products purchased shall be sourced from Indian 'small industries', which have total investment in plant and machinery not exceeding $1 million. This valuation refers to the value at the time of installation, without providing for depreciation. Further, if at any point in time, this valuation is exceeded, the industry shall not qualify as a 'small industry' for this purpose.
However, once the SMEs investment exceeds this limit, the companies will need some time to move on to the next SME to procure its raw material.
If we don't give them that window, both the retailer as well as the SME will suffer. Foreign players have sought clarity on this issue and we are thinking on these lines, said a DIPP official.
If this relaxation is granted, the department would be required to modify the policy and refer it to the Cabinet- similar to the case of FDI in single brand retail when it had changed the clause relating to mandatory sourcing from SMEs to 'preferably'.