30 Percent Sourcing Clause in Small and Medium Enterprises Said by India's MSME Minister

Global multi-brand retailers wishing to enter the Indian market through foreign direct investment (FDI) route must comply with the mandatory 30 percent sourcing clause, Mr. KH Muniyappa, Minister of Micro, Small and Medium Enterprises (MSME), has said.
 
Replying to a question on the demand of global retail giants to relax the mandatory sourcing norm and make it ‘preferably’, the Minister said, “Not preferable, it is a must. We are proposing it should be a must.”
 
The Minister was speaking to mediamen on the sidelines of a Federation of Indian Chambers of Commerce and Industry (FICCI) event in New Delhi.
 
The Minister said a multi-brand retail chain must not be allowed to source from those small and medium enterprises (SMEs), three years after such units cross the investment limit of US$ 1 million.
 
The present FDI policy norms stipulate that multi-brand retailers must mandatorily buy 30 percent of their products from those SMEs, whose investment in plant and machinery is less than US$ 1 million.
 
Earlier this week, a Parliamentary Standing Committee on Industry suggested the Indian Government to set up a regulatory body to address the problems that might come up due to the entry of global multi-brand retailers in the Indian market.
 
The committee also took serious note of the implementation of sourcing norms, and suggested that the minimum 30 percent sourcing from local SMEs should be made applicable item-wise.
 
The report also suggested that the Ministry of MSME should undertake a survey to find out the gains and losses of previous FDI policies on the MSME sector and to ascertain whether they have resulted in creation of any back-end infrastructure, imparted skills to local workforce or upgraded managerial skills, as is being envisaged in the current FDI policy.
 
The Indian Government allowed 51 percent FDI in the country’s multi-brand retail sector in September 2012, but the Department of Industrial Policy and Promotion (DIPP) has not received any formal proposal yet.