By Jeeta Bandopadhyay

The government has recently opened India’s single-brand retail market fully for foreign companies by allowing 100% FDI in the sector. However, the move has drawn mixed sentiments from the SME sector.

The government’s lifting of FDI restrictions in single-brand retail comes with a mandate that all wholly-owned international brands will need to source at least 30% of their requirement from domestic small and cottage industries, which have a maximum investment of US$1 million in plant and machinery. Congress party spokesperson Manish Tewari has termed the initiative as “constructive and in the interest” of the nation.

Apex SME industry lobby FISME has raised apprehensions on the mandatory sourcing from small units and said that the sector does not believe in government’s assurance. The SME sector is doubtful that the condition of 30% outsourcing may not stick for very long as it will not comply with the WTO norms, remarked FISME president V K Agarwal.

On the contrary, the MSME Ministry is of the opinion that the decision of 30% guaranteed offtake from domestic small-scale firms by foreign retailers is bound to create a readymade market for these small players.

Boost for domestic production
Experts feel that the government’s decision to increase the FDI limit in single brand retail to 100% from the present 51% will shoot up domestic production levels. Apex export body FIEO president Rafeeque Ahmed welcomed the initiative and said, “The decision will boost domestic manufacturing, value addition and will provide greater exposure to SME Indian suppliers, enabling them to compete successfully in overseas market, adding to our exports.”

According to Kumar Rajagopalan, CEO of Retailers Association of India, “The decision to liberalise FDI in single-brand retail will increase competition and competency in the SME sector. The 30% mandatory procurement will definitely benefit small-scale firms, but they need to upscale themselves to reap maximum benefits.”

“International quality standards, transport-ready and front-end ready may also facilitate domestic SME players to produce and supply their products not only to overseas brands in India, but also to global brands outside India, creating a massive upheaval in domestic manufacturing,” added Mr Rajagopalan.

The opening of single-brand retail sector will increase FDI inflow in the country, but there is unlikely to be any overnight flurry of funds.