India’s biggest challenge is to create employment opportunities for over 10 million people coming to the job market every year. Can Walmart do that if it seeks to abandon local sourcing? The government should not bow to US pressure.

To create 100 million jobs, the National Manufacturing Policy envisages increasing the sectoral share of manufacturing in GDP from the current 15-25 per cent over the next decade by achieving an annual average growth rate of 12-14 per cent in the manufacturing sector. This requires retaining the existing manufacturing base and exploring new opportunities.

India’s retail sector, worth around $500 billion , is the front end of millions of farmers, and small, medium and large producers. Only 5-8 per cent is in the organised sector. Therefore, the number of people employed in the retail sector as well as in its back-end supply chains is huge.

The present controversy relates to the FDI policy which mandates the multi-brand foreign retailer to source 30 per cent of its goods from “Indian small industries”. The caveat has been introduced with three objectives: first, it encourages retaining and expanding the existing manufacturing base and associated employment; second, it discourages imports by foreign retailers from their few large dedicated suppliers. This is to check widening of current account deficit and the impending foreign exchange crisis. Third, with jobs being intact, the purchasing power remains robust and economic growth becomes sustainable.

Is the 30 per cent clause tenable?Our argument is, it is. The government has already enhanced the small industry investment threshold from $1 million to $2 million . That means typically such a small company could easily have a turnover of Rs 50-100 crore — not really a small supplier incapable of generating volumes. It may be possible to interpret the rules such that a small industry is considered as such even if it outgrows the threshold level of investment in its relationship with the retailer. Therefore, the size of small industry is not a constraint. If foreign retailers have objections, it is because they are unwilling to commit themselves to develop the capacities of Indian manufacturers, and would rather go for imports.

India’s auto component sector is the result of government’s auto policy which mandated foreign companies to progressively indigenise procurement from domestic sources through the 80s and 90s. It is because of such policies that companies such as Suzuki and others brought their supplier base to India and, through a series of joint ventures, transferred technology to Indian companies. If India’s retail sector is attractive enough, the FDI policy for multi-brand retail will also lead to transfer of technologies to Indian SMEs.

(The author is president, Federation of Indian Micro and Small & Medium Enterprises.)

Read also: FDI in retail: Is 30% local sourcing feasible? - NO

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