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No changing SME definition for foreign brands, says Ravi

The ministry of micro, small and medium enterprises has ruled out any change in the definition of SMEs to help foreign retail brands setting up shop in the country.

The ministry of micro, small and medium enterprises has ruled out any change in the definition of SMEs to help foreign retail brands setting up shop in the country. This would create another hurdle for Swedish furniture giant Ikea looking at establishing its single brand retail network in the country.

Vayalar Ravi, who took charge of the MSME ministry on Tuesday said, ?We cannot change the definition for any foreign company. If they (IKEA) want to work in India, they have to go by what government says.?

The commerce and industry ministry, which recently got cabinet approval for raising FDI in single brand retail to 100%, has been pressing for the change of definition of SME to faciliate entry of foreign retailers particularly IKEA. This has been prompted by Swedish retailers aditional conditions for pumping investment worth R10,500 crore into the country.

Under present rules, IKEA or any other foreign single brand chain investing in India has to source 30% from small Indian firms. The furniture giant has objected to this condition and has asked the government to tweak the policy and allow it the flexibility to defer this sourcing clause by 10 years.

IKEA had earlier announced opening 25 retail stores in India and is pressing for changes in regulation before the actual investment is made. The company had also argued that once it starts sourcing from an SME, the profit of that firm will grow rapidly and it might not remain an SME. However, the MSME ministry says any such move would hurt Indian small scale industry. ?We are not imposing something unwanted. We have to protect our small industries. If sourcing will make small firms big, then it will create space for other small firms to benefit,? Ravi added.

Ravi said that he?s open to discuss the issue with foreign companies which are planning to invest in India. ?The government is very positive and considerate. Foreign companies can discuss their issues related to quality of products sourced from small firms with us. Foreign direct investment is welcome to India (in furniture area), but it does not mean you will eat away the job of ordinary people,? Ravi added.

Meanwhile, a senior MSME official said there hasn?t been any formal communication with IKEA. ?They (IKEA) are talking to everybody but the concerned ministry. There hasn?t been any communication at any level with us,? the officer said.

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First published on: 22-08-2012 at 03:51 IST
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