Ministries seek flexibility in local sourcing norms

The consumer affairs and micro, small and medium

enterprises ministries (MSME) have pushed for more flexibility in local sourcing clauses instead of hiking the FDI cap to 74 per cent in multi-brand retail. The MSME ministry has proposed that even after an MSME loses its tag after growing from its present size, the foreign investor in multi-brand retail should be allowed to source from it in order to comply with the mandatory 30 per cent sourcing requirement from MSMEs.

Both these ministries have, however, opposed any further increase in the FDI cap for multi-brand retail as suggested by the Mayaram Committee last month. Incidentally, even the commerce ministry has not supported the Mayaram Committee proposal of increasing the FDI cap in multi-brand retail from 51 per cent to 74 per cent. Instead, it is working on bringing out more clarifications as sought by the global retailers such as Walmart, Carrefour, Tesco.

Softening the stand on FDI in multi-brand retail by the MSME ministry is significant as it was totally opposed to opening up of FDI in the retail sector three years ago. In 2010, when the discussion paper was floated by the DIPP, the ministry for MSME said that the “retail sector provided job opportunities to 33.1 million people, making it the second-largest employer in the country after agriculture.” Sourcing of 40 per cent of merchandise from small units should also be made mandatory for retailers with FDI, the ministry recommended.