MSME Min. stresses on time cap on sourcing if SMEs grow big

The MSME Ministry has opposed a proposal by DIPP floated in a cabinet note to let multi-brand retailers continue sourcing items from small and medium units without a time cap even after crossing a minimum investment limit.

The MSME ministry has, however, agreed with DIPP's proposal to increase cap on investment limit to USD 2 million from earlier USD 1 million in units from where the retailers have to source 30 percent of items.

According to sources, the ministry has replied to the draft cabinet note circulated by the Department of Industrial Policy and Promotion (DIPP) stating that a multi-brand retail chain must not be allowed to source from SMEs, three years after the unit crosses the investment limit.

The ministry is of the opinion that “a three-year period from the day an MSME outgrows the investment limit of USD 2 million would provide required space to equip itself to independently supply to the retailer without being covered under the 30 percent procurement,” a source said.

“Therefore, the ministry supports continuation of engagement of MSME enterprise with the retailer for a period of three years from the day it outgrows the investment limit,” the source said.

In its draft cabinet note DIPP had said 'small industry' (MSME) status would be calculated only at the time of first engagement with retailer.

It said such sector shall continue to qualify as "small industry" for this purpose even if it crosses the investment limit of USD 2 million during the course of its relationship with the retailer.

With a view to accommodate some demands of global retailers such as Walmart and Tesco, the DIPP has circulated the draft of a Cabinet note seeking views of different ministries to ease FDI norms in multi-brand segment.

As per current policy, multi-brand retailers must procure 30 percent of products mandatorily from small and medium enterprises (SMEs) with an investment in plant and machinery not exceeding USD 1 million.

On the issue of considering sourcing from agri and farmers co-operatives under the 30 percent clause, the MSME ministry has accorded its approval.

“The MSME Ministry does not have any objection if processed agro products including jams, jellies and pickles produced by the agricultural/farmers cooperatives are covered under the definition of MSMEs,” the source said.

Besides, the ministry feels that the government should consider having a robust oversight system to ensure that procurement level from MSMEs is maintained, he said.