Colombo: The Indian government on Saturday said it is working on revising the definition of small and medium enterprises (SMEs) to help them meet the MSME (micro, small and medium enterprises) criteria, while catering to foreign retail companies.
“Once the Indian SMEs are engaged with them, the definition will require a change because you have a SME and you have global majors taking from you. So when you are selling this kind of material to a global major, then you may not remain a SME under the present definition,” commerce and industry minister Anand Sharma, who is on a four-day official visit to the island nation, told reporters here.
“In one year, you may double revenue and profit, so, therefore, a definition...it is a continuous process, it has to keep on evolving. The concerned department will discuss and change...,” he said.
The government had hoped its decision to remove the 51% ceiling on foreign direct investment (FDI) in single-brand retail in November would persuade high-profile brands such as Ikea, Louis Vuitton, Cartier, Armani and Rolex to invest in fully owned stores in India.
But a condition requiring 30% local sourcing from small industries in India has been a stumbling block. Small industries are defined as those with a total investment in plant and machinery not exceeding $1 million.
Ikea has said in June it will source at least 30% of the purchase value of products sold in India from its “direct and indirect supply chain comprising Indian small industries”. However, it said the mandatory sourcing norm remains a challenge “in the longer term” and asked the government to review the requirement and “provide flexibility”.
SMEs are defined as enterprises that have invested up to $1 million in plant and machinery. Ikea has said that it should be allowed to continue sourcing from its vendors even after they cross the $1 million investment limit.
In June Ikea had filled the application with the Department of Industry Policy and Promotion (DIPP) and had said if the group were to comply with this norm, such units will very soon outgrow the stipulated valuation (of $1 million) and become large set-ups.
“The guidelines will have absolute clarity. The Department of Industry Policy and Promotion is currently working on guidelines,” Sharma said.
“What I am saying is you cannot punish a SME for performing well because next year they will not be able to sell and become unproductive SMEs after two years,” Sharma said.