India dilutes sourcing norms for FDI in single-brand retail

The government Friday announced changes in sourcing norms to facilitate foreign direct investments in single-brand retail.

The Cabinet Committee on Economic Affairs (CCEA), chaired by Prime Minister Manmohan Singh, decided that overseas retailers setting up single-brand stores in India must source at least 30 percent of their goods from Indian companies, preferably from micro, small and medium enterprises (MSME).

Earlier it was mandatory for the overseas firms to source 30 percent of the goods from MSME.

"On the condition of 30 percent sourcing from MSME, it was felt that more clarity was required. Thirty percent sourcing will be done from India, preferably from MSME,” Commerce and Industry Minister Anand Sharma said at a news conference after the cabinet meeting.

In respect of proposals involving FDI beyond 51 percent, 30 percent sourcing would mandatorily have to be done from SMEs, village and cottage industries, artisans and craftsmen.

"Small industries would be defined as industries which have a 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, according to an official statement released after the cabinet meeting.

The compliance of this condition will be ensured through self-certification by the company, which could be subsequently checked, by statutory auditors, from the duly certified accounts, which the investors will be required to maintain.