India Inc came out with strong support to foreign direct investment in retail even

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as the government tried to fend off stiff resistance from the united opposition on the opening up the sector to multinationals.

While dispelling fears that liberalisation of the sector will have adverse impact on local small & marginal retail firms and farmers, two leading industrial bodies, Ficci and CII said on Monday that the move will be a game changer for the sector.

“The apprehensions are more political than economic. Due to the entry of global retail firms, local SMEs will have an additional business of around $65 to $70 billion per year. Globally the trend is that big retailers source locally. As in the case of Carrefour which is sourcing 90 per cent of its range of assortments locally and out of that SMEs contribute around 20 per cent,” Rajiv Kumar, secretary general of Ficci (Federation of Indian Chambers of Commerce and Industry) told reporters.

Estimating the impact of FDI in retail on SMEs in India, Ficci stated: The size of the Indian retail market is expected to reach $850 billion in 2020 from the present $450 billion and the sourcing from SMEs will rise to $298 billion in 2020 from the present $157 billion.

One of the main drivers of the Indian growth story is local consumption due to the booming middle class population. For long the local retailers have not cashed in on this opportunity and have been incurring losses. “The major road blocks for SMEs are lack of technology, non-availability of credit, poor marketing knowledge and uncertainty of demand,” Sanjay Bhatia, chairman, Ficci SME Committee, said.

On the opening up of sector, Bhatia said: “Global retailers will bring in right kind of technology, they have better technological know-how and with them there is a certainty of demand. The move will definitely help the SMEs to grow.”

Also, supporting the opening up of the sector, Thomas Varghese, chief executive officer, Aditya Birla Retail said, “The domestic retailers are cash strapped as banks are not open to lend money to them but the global retailers will be able to provide more cash in form of FII’s and private equity. FDI will give boost to the organised retail sector, which will positively impact producers, workers, employees and consumers.” The Confederation of Indian Industry (CII) said opening up of FDI in retail could increase organised retail market to $260 billion by 2020.

On the question of the future of 400 million dependent on the retail sector in India for their livelihood, the opposition forced Parliament to adjourn for the day.. CII is of opinion that contr-ary to the opposition belief, FDI will create millions of jobs. “The aggregate incr-ease in income for all products combined will be around $35-$45 billion per year. Also, the move would ensure 3 to 4 million direct jobs and around 4 to 6 mill-ion indirect jobs in the logist-ics sector, contract labo-ur in the distribution and repackaging centers, housekeeping and security staff in stores,” Chandrajit Banerjee, director general, CII said.

Industry also believes the move will be beneficial to the exchequer. “Organised retail sector is known to have a clear and transparent work ethics. The rise in buying from the organised stores will ensure that government will have better tax collection,” said Varghese.

Industry says farmers too will benefit. “Direct sourcing of produce will definitely help farmers as there will be a increase in price realisation of the farmers by 10 to 30 per cent. There will be upgrading of farmer’s know-how capabilities and also improvement in output and yield through better

extension services,” Banerjee, said.

Last Friday on the issue of price rise, RBI governor, D Subbarao said that FDI in retail will help in to rein in inflation. Ficci believes that even though there might not be immediate effects, the new norms will definitely help in the long run. “The reason behind high inflation is rising food prices and with big retail companies investing heavily in bank-end operations, there will be a reduction in wastage at farm level as they will directly source from them. This is not an immediate remedy, but surely in long term it will help,” said Sanjay Bhatia.

Sensing a 360 degree advantage for the retail sector, the industry feels the most beneficial entity would be the consumer. The industry has hinted for safeguards to protect the local industry. “The government could be well be advised to bring in a cap on the import content for both foreign and local retailers,” said Rajiv Kumar.

Even tough the industry has added a few words of caution; it has come out in full support of the FDI in retail. The India Inc said: This would result in wider choice for the consumer with better competition. It would lead to assurance of quality with greater transparency and easier monitoring. Also, as SMEs are labour intensive the opening of sector would mean that they would have to intensify their hiring to fend off the competition.