Foreign retail chains investing more than a 51 per cent via foreign direct investment (FDI) in the single-brand sector must still source 30 per cent of their products from India, Trade Minister Anand Sharma said on Friday. But the sourcing no longer has to be from small- and medium-sized industries, he said.
The requirement to source from small industries had proved an obstacle for companies such as furniture giant IKEA, which is looking to invest in Asia's third-largest economy.
India had earlier rebuffed a request by Ikea to relax rules on buying goods locally. Ikea, famous for its self-build flat-packs and huge stores, said last month it would invest Rs. 10,500 crore and open 25 outlets, throwing a lifeline to the government in India where economic growth has slowed sharply.
However, the Swedish company sought a 10-year window to comply with rules that foreign retailers source 30 per cent from local small and medium-sized firms, a requirement which overseas companies say discourages investment.
When contacted by Reuters, Ikea said a short delay in its formal application to enter the Indian market would not affect its decision to open stores, and hoped to start operations soon.
India offers Ikea a huge new market while the government is battling heavy criticism over its management of Asia's third-largest economy where growth has slipped to its weakest pace in nine years.