The government on Thursday indicated that it may relax rules to allow global supermarkets to set up shop in smaller cities and permit purchases from cooperatives and producer federations to be included in the mandatory sourcing clause. In addition, the government may clarify that acquisition of front-end operations by a foreign investor will be permitted. The signals came during commerce and industry minister Anand Sharmas meeting with domestic and international retailers as foreign investment was yet to flow into the multi-brand retail segment even nine months after the government opened the window. Sharma, however, made it clear that international investors should not expect the government to roll back the policy on mandatory 30% sourcing from small and medium enterprises or investment in back-end infrastructure, which were the two key demands. No policy can be divorced from the socio-economic conditions of the nation. These conditionalities are a reflection of the realities. The purpose of the policy is creation of infrastructure, jobs and reduction of post-harvest losses. Sourcing has to be given priority and reflected, Sharma was quoted as saying by a source present in the meeting. To the waiting media contingent, the minister only said the government will look at providing flexibilities, wherever possible.
The relaxations would mean that instead of confining the purchase of goods from SMEs, the companies could include procurement from entities such as Amul or Nafed to comply with the 30% sourcing requirement. A key concern for retailers is that purchases from units with investment of up to $1 million in plant and machinery may push them out of the SME segment and force them to source from multiple units, which will increase the cost of doing business. As a result, those such as Bharti Groups Rajan Mittal suggested that SME sourcing should be a best endeavour clause and not mandatory. A special mention was made for electronic goods, with retailers saying that it may be tough to meet the SME purchase norms. The government responded by saying that companies should look to invest in creating a set-up where the 30% requirement can be met. Sources said the commerce and industry ministry was looking at the possibility of providing for stores to be opened in tier-II and tier-III cities. The other major area of concern for global retailers was investment in infrastructure, where existing rules mandate that at least 50% of the initial $100 million is ploughed into creating the back-end architecture, which can include warehouses and cold chains.
REMOVING HURDLES, RETAILERS WORRIES
Further clarifi cation on 50% investment in back-end required Retailers demand clarity on operating through franchise model Supermarket chains complain of mandatory sourcing from SMEs being a drag on business
Purchase from cooperatives, producer federations to be included in SME sourcing Rules out dilution of overall 30% sourcing clause.No concessions for electronics Centre may allow foreign retailers to set up shop in tier-2 & 3 cities Acquisition of front-end operations may be allowed Provides comfort by ruling out reversal of policy
Source: Times of India
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