New Delhi, April 29: The government plans to dilute single-brand retail norms to allow foreign firms to continue sourcing from small industries even after the latter grow big from such associations.
Earlier this year, the government had lifted restrictions on global chains such as Adidas, Louis Vuitton, Gucci and Nike to set up stores with full ownership.
While allowing 100 per cent FDI in single-brand retail, the government had made it mandatory for the foreign retailers to source at least 30 per cent of their goods from small and cottage industries, which have a maximum investment in plant and machinery of $1 million (about Rs 5 crore).
However, the $1-million cap seems to be a hurdle as the global players feel they will have to change the vendors once the entities from whom they will source breach the limit and lose the small-industry tag.
Commerce ministry officials said, "Several global players have expressed their reservations about this cap though they had little issue about the mandatory sourcing clause. They also indicated that funding the units for technology upgradation and scaling up capacity could breach the norm."
The officials said considering these concerns "we could consider allowing the retailers to continue sourcing from small and cottage industries even after they benefit from their association with the global players".
Single-brand retail in 2011 accounted for 25-30 per cent of the $26-billion organised retail market in India and will grow to about $20-25 billion in five years, according to Technopak Advisors, a retail consultancy firm.
Luxury brands such as Vertu, Christian Louboutin, Armani Junior, van Laack and Diesel are keenly watching the FDI norms to begin operations in the country, analysts said.
The decision to increase FDI in single-brand retail from 51 per cent to 100 per cent was taken by the cabinet in November along with the proposal to open the gates to overseas investment in multi-brand retail. However, the decision on multi-brand was put on hold because of protests by the Opposition as well as UPA allies such as the Trinamul Congress.
International retailers, including Swedish home furnishings giant IKEA, have expressed concerns over the lack of clarity on the mandatory sourcing clause.