Relaxations to MSME may benefit global retailers

Global multi-brand retail companies including Wal-Mart

and Tesco may find it easier to meet the mandatory local sourcing norms for investing in India owing to the relaxations for micro, small & medium enterprises (MSME) introduced in the Union Budget. The Budget has proposed that the non-tax benefits or preferences enjoyed by MSMEs – units with less than one million dollars (Rs 54 crores) investments in plant and machinery – will stay with them for up to three years after they grow out of the category in which they obtained the benefit.

This could mean that foreign investors in multi-brand retail, who are supposed to mandatorily source 30 percent of their inputs from local MSMEs are allowed to continue sourcing from their vendors long after they cease to be in the small sector category. This would help boost the confidence of foreign players, who were holding back their India plans due to mandatory sourcing norm mentioned in the FDI policy.

The government opened up the multi-brand retail segment for foreign investors in September 2012 allowing up to 51 percent foreign funds, but foreign companies are yet take advantage of it fully. International multi-brand chains such as Wal-Mart, Tesco and Carrefour have expressed apprehensions related to the MSME sourcing clause as they fear that once they start sourcing from small units, these would need to invest more in plant and machinery.