After the Union government announced 100 per cent FDI
in single brand retail, many luxury labels were contemplating India entry. But many later cited 30 per cent mandatory sourcing from SMEs regulation causing hindrance to their plans. The government is now likely to modify the guidelines for FDI in single-brand retail to ensure that foreign retailers can have long term relationship with micro and small enterprises. The sourcing clause may be removed for those single-brand retailers who can establish that it is not possible for them to procure goods from local small enterprises because of technology or product sophistication. It is believed that the industry ministry had received feedback from companies like IKEA, Nike and Applet that they were unlikely to invest in India until the sourcing norms were simplified. Under the single-brand route, companies can open their own stores provided they sell products under their own brand name.
Sources say Nike officials have told the government that the sports goods and apparel major wanted to source from Indian firms, but needed to invest in these entities to upgrade technology and scale up capacity. But doing so would breach the small scale cap of $1 million (around Rs 5 crore) investment in plant and machinery. Adidas too had said that the 30 per cent mandatory sourcing from small and medium enterprises is a concern and though the policy is being studied, but the sourcing part is something that is difficult to follow.
The changes are expected to address the concerns of the foreign retailers about 30 per cent mandatory sourcing clause. International retailers, including Ikea had expressed concerns over the lack of clarity on this condition. The foreign retailers have suggested that the condition should be modified so that they can continue to procure goods from the same vendor even after it loses its MSE tag.