FDI - Building Future

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Deep Kapuria | 11 Feb, 2013
India's micro, small and medium enterprises (MSMEs) collectively account for nearly a half of the country's annual industrial output, exports and employment. Yet, the sector is continually embattled with intractable issues like limited access to credit and institutional finance, technological obsolescence, limited market access, and skilled manpower shortage.

While Government of India, in particular the Ministry of Micro, Small and Medium Enterprises, has launched a variety of schemes to bolster MSME development, the sector's capacity to grow and compete globally will hinge on its ability to attract big-ticket investments. Foreign direct investment (FDI) inflows thus assume key significance for the sector.

For decades, Indian MSMEs operated in a relatively protected business environment but in a globalised business environment like today they would need sizeable investments to access new technologies, scale up operations and foray into new markets. Our MSME minister, Mr K H Muniappa, has underscored the importance of attracting FDI to the MSME sector. Now, time is rife for Government and industry to act in consort to enhance the sector's attractiveness to global capital. We need to create an ecosystem that helps build and reinforce future-ready MSMEs.

CII has all along been a strong votary of FDI in the Indian MSME sector, albeit with due protection of the business interests of Indian enterprises. We believe the Government's nod for FDI in India's retail sector was a defining moment for the MSME sector as a whole. Industry is well aware of the significance of FDI as is borne out in a recent CII survey wherein 80 percent of the respondents said they were in favour of FDI in the retail sector.

It is my firm belief that FDI will strengthen Indian MSMEs' capability to meet the procurement criteria laid down by Government and MNCs alike. New policies like the Public Procurement from MSEs and the Defence Offset Policy are indeed opening up new opportunities for MSMEs. But to maximise these opportunities, the enterprises will need to enhance their production capacity and quality standards which can come about with FDI inflows.

Many business leaders have come to believe that FDI will bring it cutting-edge management expertise and technologies that are vital for boosting the MSME sector's productivity levels, branding and supply chain efficiencies, apart from creating more employment opportunities within the country.

Some quarters do believe that FDI could negatively impact our small businesses. There is fear that overseas players could leverage their financial and technological strengths to put our domestic players out of business. Some others have said that FDI inflows will increase the capital intensity of small business, leading to contraction of employment opportunities.

While we cannot wish away these concerns, we need to remind ourselves of the fact our MSMEs will not be able to hold their own in an increasingly competitive and globalised business environment unless they have access to capital, new technologies, markets and skillsets. FDI could give our enterprises the muscle to push ahead in business. But for that to happen, our enterprises should have to professionally manage their businesses, adopt best practices and governance norms, innovate continuously, and come up with big ideas for the future. The Indian MSME sector is at an inflexion point. Let us join forces in taking this sector to the next level.

* Mr Deep Kapuria, Chairman, CII National MSME Council and Chairman, Hitech Gears Ltd.
* The views expressed by the author in this article are his/ her own and do not necessarily reflect the views of SME Times.