FDI: MSME minister Vayalar Ravi against easing sourcing rules for single-brand retail

NEW DELHI: Small and medium enterprises (MSME) minister Vayalar Ravi has scaled up his opposition to any relaxation in the sourcing rules for foreign single brand retailers.

In a letter to the prime minister, days before he was to meet commerce and industry minister Anand Sharma to find a mutually acceptable solution, Ravi has said the relaxation could lead to a surge in cheap imports.

The commerce and industry ministry had been mulling changes in the policy for foreign direct investment in single brand retail after the Swedish retailer IKEA expressed its unhappiness with the sourcing clause.

The company has proposed $1.9-billion investment in India, but has sought some relaxation in the rules. The current rules say that at least 30% of the goods sold by value would have to be sourced from small industry.

The commerce and industry ministry has proposed that the 30% sourcing should 'preferably' be done from small industries, 'where it is feasible', which will substantially dilute the provision. "If there is any relaxation in this norm, itself, it would lead to major upsurge in cheap imported goods, which are being made in non-transparent economies where direct and indirect subsidy regimes coupled with currency controls, which ensure unfair exports to third countries," Ravi, Minister for Micro, Small and Medium Enterprises (MSME), said. The secretaries of the two ministries met on Wednesday ahead of the ministerial meeting to sort out the issue.

"The sourcing clause was definitely discussed but we will come to a final decision once the ministers convene their meeting this week," a senior DIPP official told ET.

In January this year the government had allowed 100% foreign investment in single-brand retail against 51% allowed earlier, but introduced several riders such as the brand ownership clause and 30% sourcing clause.

It defines small industry as one with investment in plant and machinery not exceeding $ 1 million.

IKEA said it should be allowed to source from its suppliers even if they grow in size over the years, a condition that Ravi is not averse to relaxing.

"Government can always give a relaxation that if small units have grown bigger, sourcing from such units would still be considered to be sourcing from small industry," the letter said.