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Government not looking at changing FDI policy for single brand retail at the moment

The FIPB, under the finance ministry, approves FDI proposals of investors based on the policy governing the particular sector.

, ET Bureau|
Updated: Jul 09, 2012, 07.37 PM IST
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NEW DELHI: The government is not looking at bringing about changes in its foreign direct investment policy on single brand retail as of now and will take a decision only after the foreign investment promotion board examines Swedish homeware company Ikea's concerns on domestic sourcing norms, a top official has said.

The department of industrial policy & promotion, the nodal ministry for framing FDI policy, has already written to Ikea on its concerns related to the sourcing norms and will place it before the FIPB after the company sends in its reply.

The FIPB, under the finance ministry, approves FDI proposals of investors based on the policy governing the particular sector.

"We are not bringing about any changes in the single brand retail policy as of now. We plan to place all concerns raised by Ikea on domestic sourcing norms before the FIPB once the company replies to the communication sent by us to them on the issue," a DIPP official told journalists on Monday.

Ikea, which recently announced its plans of investing Rs 10,500 crore in India over the next few years, placed some conditions related to meeting the mandatory 30% domestic sourcing requirement from micro, small and medium enterprises or MSME stipulated in the FDI policy.

It has asked the government to consider the sourcing amount over a period of ten years and also allow vendors that qualify as MSME when sourcing starts but over-shoot the $ 1 million limit for investment in plant and machinery eventually to be counted as MSME suppliers.

Other conditions include consideration of the end sale price of the products supplied by the MSME sector rather than the price at which it is sold to the retailer while calculating the sourcing value.

The DIPP has written back to Ikea on what could be considered by the government and the demands that could not be met.

The MSME ministry has opposed any unilateral decision by the DIPP to change the sourcing norms and the definition of MSME. ""The Union Cabinet has approved the sourcing norms from MSMEs and, therefore, it cannot be changed without its consent,"" an official from the MSME ministry, who did not wish to be quoted, said.

The government had increased the FDI cap for investing in single-brand retail from 51% to 100% earlier this year subject to the clause that 30% of the sourcing done by such companies has to be from domestic small and medium enterprises with up to $1 million investments in plant and machinery.

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