Sourcing norm to apply to only 15% of Tescos product portfolio.
The worlds third-largest retailer,UKs Tesco Plc,has managed to extract a major concession from the Indian government which could see it set up shop in India. The department of industrial policy and promotion (DIPP) has assured the retailer that the 30 per cent sourcing norm from Indian medium and small enterprises (MSMEs) would apply to only 15 per cent of its product portfolio if it were to open stores in the front-end segment.
DIPP officials said that since sourcing rules related only to manufactured and processed products,it would not apply to Tesco. Tesco had pointed out to the ministry that 85 per cent of products it proposes to sell through its multi-brand retail outlets in India,would comprise fruits and vegetables or products made from these and would be sourced directly from farmers. The question of sourcing from MSMEs,therefore,did not arise,Tesco had explained.
Tesco had asked if farm produce would be kept outside the ambit of this clause and we felt that unprocessed and dairy products should not be included. The clause will apply only to processed and manufactured products, a DIPP official said. Tesco set up an Indian subsidiary in December 2012 to buy fresh and processed foods from the country for its global stores.
Tescos CEO Philip Clarke and Noel Tata,MD,Tata International and vice-chairman,Trent had met commerce and industry minister Anand Sharma last week to seek clarification on whether the produce it acquired from farmers would qualify as a procurement from the MSME segment. Earlier in the week,Tescos query on whether the minimum investment in back-end infrastructure,of 50 per cent,would apply to initial investment or cumulative investments was also answered by the government,which clarified that it related to only the first tranche of investment.
In the year to February,23,2013,Tesco,which runs 6,784 stores worldwide,clocked revenues of £72.4 billion and a profit before tax of £3.5 billion. With an employee base of 5.2 lakh,the company is present in 12 markets.
The clarification to Tesco is in line with what Sharma had said earlier that while there would be no changes in the policy for FDI in multi-brand retail,his ministry would examine issues on a case-by-case basis and provide clarification. The government is keen that investments in the multi-brand retail sector come in after allowing foreign retailers September 2012 to hold up to 51 per cent in such ventures.
The relaxation for Tesco will come as a breather for foreign firms interested in investing in consumer durable stores in India. Such stores do not need the kind of investments the government has stipulated for creating back-end infrastructure minimum investment of $100 million in first tranche and 50 per cent of it to be in back-end. Industry sources said that it is likely that some relaxation may be offered to them if such firms meet the minister or his officials and present the peculiarities of their businesses.
Relief for Tesco also comes after the DIPP clarified on another issue on which the retail industry had raised concerns the minimum investment required in the back-end whether it would be one-time or recurring and or it would apply only to greenfield ventures or brownfield as well.
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