Global multi-brand retail companies including Walmart and Tesco may find it easier to meet the mandatory local sourcing norms for investing in India thanks to the relaxations for micro, small & medium enterprises (MSME) introduced in the Union Budget 2013-14.
The Budget has proposed that the non-tax benefits or preferences enjoyed by MSMEs – units with less than $1 million investments in plant & 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 per cent 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.
“India has not received a single proposal for foreign investment in the multi-brand retail segment yet as investors are fearful about compulsory sourcing from the small sector. If the Government can assure that foreign retailers will be allowed to retain their vendors even after they cease to be in the MSME category, it will be a big boost to investor confidence,” a retail-sector expert from a Delhi-based think-tank told
The Government opened up the multi-brand retail segment for foreign investors in September 2012 allowing up to 51 per cent foreign funds, but foreign companies are yet to make a formal proposal.
International multi-brand chains such as Walmart, 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 thereby graduating out of the category.
Commerce Minister Anand Sharma had taken up problems related to MSME sourcing faced by foreign multi-brand retail investors with the Finance Minister and had asked for dilution of the clause.