The Centre?s recent decision allowing 100% foreign direct investment (FDI) in single brand retail and the stipulation of at least 30% sourcing from domestic micro and small enterprises (MSEs) are seen as positives for the MSME sector. Industry opinion is that the new policy will help MSEs scale up on sales, size, capacity, quality, technology, branding, and job generation, going by a survey of the Confederation of Indian Industry (CII).
?India?s growing retail boom is a success story. Fifty-one percent FDI in multi-brand retail and its early implementation would give a major boost to the all-round growth of the country?s organised retail and have a substantial positive impact on the growth of MSMEs? said Chandrajit Banerjee, director-general, CII.
CII has recently done a comprehensive survey of the MSME sector to assess the likely impact of 51% FDI in multi-brand retail (not yet allowed) and 100% FDI in single brand retail.The survey covered enterprises from different regions having a sales turnover of R25 lakh to R100 crore-plus. The survey found that most MSMEs see FDI in retail as beneficial to their growth.
Key findings
On the question of whether the enterprises consider the entry of MNC retailers as a threat or opportunity, a majority of the respondents (66.7%) saw it as an opportunity for the sector while around 21% perceived it as a threat.
The majority (98.6%) also felt that FDI in retail would augment their sales. Of them, around 21% foresee their sales growing by more than 20%, while 31% expect a growth of 10-20%. The rest felt that the growth would be under 10%, with the exception of the 6% respondents who felt that the decision would have a negative impact on the sales of their products.
On the possible impact on the size of the industry, business and capacity addition, the majority (98%) expects the size of their enterprises to grow when higher FDI is allowed in organised retail. Here, 22.9% respondents expect 20%-plus growth while 2% feared a negative impact. Similarly, 96% respondents felt that FDI in retail would generate new orders/contracts for them. Over 31% expected 20% growth in new orders and contracts, and 27% expected 10-20% growth, while 4% sensed a negative impact.
Over 56% felt that the mandatory 30% sourcing will facilitate qualitative improvements and branding of their products. The mandatory sourcing will also provide for greater scale of production and value addition, triggering a multiplier effect on employment, technology upgradation, income generation, demand and investment.
Nearly 69% respondents opined that the FDI in retail would lead to improvements in supply chain efficiencies in their segments, which would integrate SMEs into the modern trade process, leading to substantial knowledge and skills transfer.