A Survey on the Impact of FDI in retail on SME undertaken by the Confederation of Indian Industry (CII) confirms that SME industry, by and large, supports 100 % FDI in single brand retail and expects earlier and speedier implementation of 51% FDI in multi-brand retail and notification to that effect in consideration of the overall benefits for industry and business.

The government's decision of mandatory sourcing of a minimum of 30% from Indian micro and small industry will help SMEs to achieve higher growth in sales, size of the industry, capacity addition, increased contracts/orders, qualitative improvements and branding of the products, technology upgradation, employment, etc. "India's growing retail boom is a success story. 51% FDI in multi-brand retail and its early implementation would give a major boost to the all round growth of organized retail in the country having substantial positive impact on the growth of SMEs" says Mr Chandrajit Banerjee, Director General, CII.

The Confederation of Indian Industry (CII) has recently undertaken a comprehensive survey on Foreign Direct Investment (FDI) in retail on SME sector, in particular to assess the impact of the government's proposal to allow 51% foreign direct investment (FDI) in multi-brand retail and 100% in single brand retail on the Indian SME sector on different aspects of growth based on some select parameters.

Major findings of the survey

The CII Survey is based on a large sample size covering different categories of SMEs according to sales turnover including companies with a turnover of Rs 25 lakh to 1 crore, between Rs 1 crore to Rs 5 crore, Rs 5 crore to 25 crore and SMEs having turnover between Rs 25 crore and 100 crore and above, from different regions of the country.

The CII Survey reveals that almost 96% of the respondents from SME sector are aware of the Government's earlier decision to allow 100% FDI in single brand retail and 51% FDI in multi-brand retail and also of the latest notification in January this year.

A majority of the SME companies surveyed, have supported the government's decision and the notification allowing 100% FDI in single brand retail and 52 per cent of respondents hope for an early implementation of 51% FDI in multi-brand retail with required notification.

On the question of how the SME industry considers entry of MNC retailers as a threat or opportunity, majority of respondents (66.7%) see it as an opportunity for their sector while around 21% of respondents perceive it as a threat. About 12.5 per cent of respondents are of the opinion that the decision would have little or no impact on their business.

Majority of the respondents (98.6 per cent) are of the opinion that the opening of the FDI in retail will augment growth of sales of their products. Of them, around 21 per cent respondents foresee the growth of sales of their products to escalate in the excellent range of more than 20 per cent, 31 per cent of the respondents expect the impact on growth of sales to be in the high range of 10-20 per cent while 33 per cent expect it to be in moderate range 5-10 per cent. 8 per cent of the respondents perceive the growth to remain in a low range (0-5) category and 6 per cent of the respondents feel that the decision would have a negative impact on the growth of sales of their products.

On the aspect of the possible impact on the size of the industry, business and capacity addition, majority of the respondents (98 per cent) expect the size of their Industry / company to grow with the opening of 51 per cent FDI in multi-brand retail along with 100 per cent FDI in single-brand retail. Of them, around 22.9 per cent of respondents perceived that their industry would grow by excellent rate of more than 20 per cent, 25 expect that the size or capacity addition to be in the high range of 10-20 per cent while 33 per cent expects the growth to be in the moderate range of 5-10 per cent and 22 per cent perceive the growth to be in the low range (0-5 per cent) category. A negligible 2 per cent of the respondents feel that the decision would have a negative impact on the growth of size of the industry and business.

Majority of respondents (96%) are of the view that opening of the FDI in retail would impact positively in the form of new orders/contracts generated. Around 31.2 per cent of respondents expect the new orders and contracts to grow substantially with more than excellent rate of 20 per cent growth. 27 per cent of the respondents expect the impact on the new orders and contracts to be in the high range (10-20 per cent) while 31.2 per cent expect the growth of orders / contracts to be in the moderate range of (5-10 per cent). Around 6 per cent perceive the growth to be in a low range (0-5) category but 4 per cent of the respondents feel that the decision would have a negative impact on the growth of size of the industry in terms of new orders.

Over 56 per cent of the respondents are also of the view that the government's decision of mandatory sourcing of a minimum of 30% from Indian micro and small industry will help in achieving qualitative improvements and branding of the products. This in turn will ensure SMEs in receiving a sure source of market for their products while ensuring value realisation for their products/supplies. This will also provide for expansion of the scales of production facilitating domestic value addition in manufacturing, thereby creating a multiplier effect on employment, technology up gradation and income generation, demand and further investment

68.7 per cent of the respondents are of the opinion that the opening up of retail would lead to improvements in the supply chain efficiencies in their sector which in turn will integrate small and medium size enterprises into the modern trade process, resulting in substantial amount of knowledge and skills transfer in the sector.

Around 48 per cent of the respondents are of the opinion that the decision would have a positive impact on their employment whereas 35 per cent expect no change in the employment scenario. Around 16 per cent expect the impact of FDI in retail on the employment in the SME sector to be negative.