Foreign investors seek buffer time for SME shift

The retail industry has urged the central government

to provide a buffer time to overseas investors in the multi-brand segment while switching from one supplier in the small and medium enterprise (SME) segment to another, once the former outgrows the 1-million dollars (Rs 5.6 crores) limit.

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. Currently, the multi-brand retail policy for foreign direct investment stipulates that at least 30 percent of the products purchased shall be sourced from Indian 'small industries', which have total investment in plant and machinery not exceeding 1 million dollars. 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 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'.