Government moves Cabinet note to ease local sourcing norms for

• Posted by Sindhuri G August 29, 2012 - Filed in Business - 2,060 views

  NEW DELHI: The government has moved a Cabinet note to substantially dilute the controversial local sourcing norms for foreign single-brand retailers that have cast a shadow over IKEA Group's $1.9-billion investment plans and discouraged foreign players, even after India allowed 100% foreign direct investment in the sector.
  
  In a note for the Cabinet prepared earlier this month, the commerce & industry ministry has climbed down from the stipulation that 30% sourcing would have to be mandatorily done from SMEs and cottage industries. It has now proposed that 30% sourcing should 'preferably' be done from small industries, 'where it is feasible'.
  
  While the current guideline, which applies to all single-brand retailers with over 51% foreign ownership, states that foreign companies must self-certify compliance with the 30% local sourcing conditions, the amended norm will merely state that 'the quantum of domestic sourcing will be self-certified by the company'.
  
  The changes proposed in the Cabinet note are in line with the assurances given by Commerce and Industry Minister Anand Sharma and his officials to foreign retail companies.
  
  The government hopes the proposed changes will address the concerns of Swedish furniture retailer IKEA and other foreign single-brand retailers that have demanded the local sourcing norms be relaxed. The note for the Cabinet says the "proposal is expected to address the basic concern of the foreign investors" and boost the flow of FDI into the country.
  
  The note concedes the government has received only two proposals from foreign companies (Pavers England is the other company apart from IKEA) for setting up wholly owned single-brand retail stores in the country.
  
  "Foreign investors are of the view that the condition of 30% mandatory sourcing from Indian small industries/village and cottage industries, artisans and craftsmen will deter the desired foreign investment... as single-brand retailers, engaged in the business of specialty/high-end products, would find it difficult to source from small industries either internationally or from India," it said.
  
  The commerce & industry ministry has said many single-brand retail entities deal in specialty/high-end products and have existing investments in supply chains, which cannot be moved to India.