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Small and medium enterprises need regulatory backing

business Updated: Dec 02, 2011 00:18 IST
Debobrat Ghose
Debobrat Ghose
Hindustan Times
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The rider that global retailers will have to source nearly a third of non-food merchandise from small local firms leaves one question unanswered: who will police it?

"Our apprehension is about the efficacy of implementation of the 30% procurement clause, because small and medium enterprises (SMEs) suffer from several structural weaknesses in the regulatory and taxation system, which makes them uncompetitive within the country and render them vulnerable against the global giants," said VK Agarwal, president of Federation of Indian Micro, Small and Medium Enterprises.

The policy, cleared by the cabinet last week, makes the sourcing of a minimum of 30% from Indian micro and small industry with a capital investment of not more than $ 1 million (Rs 5 crore), mandatory.

"This will provide the scales to encourage domestic value addition and manufacturing, thereby creating a multiplier effect for employment, technology upgradation and income generation," a government official said.

At present, about 35% of the total merchandise sold in India through small unorganised retailers are sourced from small and medium enterprises, a study by Federation of Indian Chambers of Commerce and Industry (Ficci) said.

Still, small firms aren't convinced and some believe that the policy does not clearly stipulate whether large retailers will be barred from picking up majority stake in small firms that they source their products from or set up front companies that can potentially crowd out genuine indigenous small entrepreneurs.

"The government hasn't mentioned any watchdog or what action would be taken on violation of procurement clause," Gujarat Small Sector Industries Federation, president, Atul Kapasi said.

"The FDI policy is an enabling framework and it remains the prerogative of the states to adopt it. On ground implementation of policy will clearly be within the parameters of state laws and regulations," the government official said

There were others, who were gung ho.

"By engaging local producers, organised retail provides them with an access to a much broader consumer set. For instance, a leading retailer operating in India has engaged a local pickle manufacturer in Amritsar and invested to upgrade its equipment. As a result, this manufacturer is now present across markets that were traditionally beyond his reach," said Abheek Singhi of Boston Consulting Group

"It would create opportunity and our products will reach a global platform," said Rajive Chawla, president of Faridabad Small Industries Association.