Wednesday, 24 May 2017

Impact of FDI in Retail on Local Entrepreneurs and MSME in Assam With special reference to the Sonitpur District

Abstract:
Manoj Kumar Hazarika, Assistant Professor, Department of Commerce, Darrang College, Tezpur, Assam
Kakoli Sengupta, Assistant Professor, Department of Commerce, Darrang College. Tezpur, Assam 

Micro, Small and Medium Enterprises forms the back bone of our nation. It is based on the Gandhian philosophy and only the way to help India becoming self reliance.  It contributes 45 percent of the industrial output, 40 percent of Indian export, employing 60 million people, creating 1.3 million jobs every year and producing more than 8,000 quality products for domestic as well as for foreign markets. It also provides the scope to fulfill the dreams of local entrepreneurs by commercializing their talent and resources.
FDI in retail has both positive and negative impact on local entrepreneurs and MSMEs. Even though myriad opinions are being floated on FDI in retail, some SMEs in India are welcoming it. Indian retailers should not too much worry about 51 percent or 100 percent FDI in retail as ‘Amway’ and ‘Herbal Life’ have already entered in various forms in Indian retail sector more than 2 decades ago. Moreover, existence of big Indian retailers likes Reliance, Big Bazaar; Vishal etc. have no negative effect on the existing local and small retailers, entrepreneurs and SMEs rather giving opportunities and challenges to improve their products and commodities. Consumers and farmers will be directly benefited from the FDI in retail by getting quality products and right value of their commodity respectively. However, some floated middlemen may be out of the supply chain due to the direct contact with farmers by the big brothers.
 After 6 decades of independence Indian retail sector must be competent enough to face any global challenges, otherwise they will lose the world share.  This research paper is empirical in nature and based on primary information as well as secondary data. It tries to study the impact of FDI in retail on the local entrepreneurs and MSMEs in Assam in general and Sonitpur District in particular. Opinions of some selected entrepreneurs, businessmen, conscious consumers are taken on the basis of judgement sampling method by preparing schedules.

Key-words: FDI in retail, Local & Rural Entrepreneur, MSME


1. Introduction:
Retailing plays a crucial role by linking producers and consumers in a modern market economy. The performance of this sector has a strong influence on consumer welfare. Retailers not only provide consumers with a wide variety of product, but also a wide range of complementary services, which lead to more informed choice and greater convenience in shopping. They also provide information about the consumer demand pattern to the producers. In the year 2012, the Indian retail sector contribution was Rs.18, 673 billion and it accounts for around 15 percent of GDP and 8 percent of the total employment. Economic development, rise in purchasing power, growing consumerism and brand proliferation has led to retail modernization in India. With high economic growth, per capita income increases; this in turn, leads to a shift in consumption pattern from necessity items to discretionary consumption. Furthermore, as the economy liberalizes and globalizes, various international brands are entering into the domestic market. Consumer awareness increases and consumers tend to experiment with different international brands. The proliferation of brands leads to increase in retail space. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to Rs. 33,000 ($660) billion by 2015. Traditionally, Indian retail sector has been characterized by the presence of a large number of small –unorganized retailers about 96 percentage of the total retailers. However, in the past decades there has been development of organized retailing, which encouraged the large private sector players to invest in this sector such as Reliance Group, Big Bazaar, Vishal etc. Although prior to Jan 24, 2006, FDI was not authorized in retailing, most general players had been operating in the country through different routes such as test franchising, wholesale, cash-and –carry operation, own based retailing chain etc. The Reserve Bank of India (RBI) approved to enter foreign players in franchising and commission agent under the Foreign Exchange Management Act such as Pizza Hut,  Mango, Nike etc. 100% FDI is allowed in wholesale trading which involves building of a large distribution infrastructure to assist local manufacturers. Metro AG of Germany was the first significant global player to enter India through this route.  Some foreign brands give exclusive licenses and distribution rights to Indian companies. Through these rights, Indian companies can either sell it through their own stores. Mango, the Spanish apparel brand has entered India through Piramyd, Mumbai, SPAR entered into a similar agreement with Radhakrishna Food lands Pvt. Ltd.
Moreover, the foreign brands such as Amway, Herbal Life, Nike, Reebok, Adidas, etc. that have wholly-owned subsidiaries in manufacturing are treated as Indian companies and are, therefore, allowed to do retail. For instance, Amway India was established 1995 and the commercial operation was from 1998, which has emerged as the largest Direct Selling FMCG.



2. Objectives of the Paper:
The main objective of this paper is to study both the positive and negative impact of FDI in Retail on Local Entrepreneurs and MSME in Assam in general and the Sonitpur District in particular.

3. Methodology:
This research paper is empirical in nature and based on primary data as well as secondary data. 120 samples was selected so far for the study and  primary information was collected through schedules and personal interviews from eminent businessmen, conscious consumers, local entrepreneurs, NGOs relating to this sectors and academicians on judgment sampling method. The survey was conducted during month of Feb and April 2013. The Schedule is constructed in such a way that it will not harass the respondents and also based on cost and time factors of the study.  Secondary data are collected from various websites, research papers, e-journal, e- books, and survey reports. The whole paper is based on descriptive arguments, statistical data, comparative study and analytical logic developed.

4. District Profiles:
An attempt is made to carry out a study in Sonitpur District of Assam on “Impact of FDI in Retail on Local Entrepreneurs and MSME in Assam with special reference to the Sonitpur District.” Therefore a brief profile of the districts becomes inevitable part of the study.
Sonitpur district of Assam (India) is spread over an area of 5,235.2 sq. kms and is the second largest district of Assam after Karbi Anlong district. The district is located in the North bank of river Brahmaputra and between latitude range 26.30 North to 27.01North and longitudes 92.16 East to 93. East. Three sub-divisions of the district are namely Tezpur, Biswanath-charali and Gohpur.
            Total work force of the district is 6, 43,723 where main workers consist 4, 64,115, marginal workers consist 1,69,440 and non-workers are 10,168. Workers engaged in household and cottage industries are 2,611 i.e. 0.56%.
Table 1.1
Occupational Distribution
Sl. No.
Occupation
No of Worker
  Percentage
1
Small and marginal farmer
2,39,071
51.50
2
Agricultural labourers
Livestock and forestry
58,403
12.60
3
Workers
93,428
20.13
4
Household/Home Based industry
2,611
0.56
5
Other worker
70,602
15.21
Total:
4,64,115
100.00
Source: UCO Bank, Lead Bank Office, Annual Credit Plan 2012-13, Tezpur.

5. Impact on Local and Rural Entrepreneurs:
An entrepreneur is the person who bears risk, unites various factors of production and carries out innovations. An entrepreneur can, therefore, be defined as an individual or a group of individuals who tries to create something new, who organizes production and undertakes risk involved in the establishment and operation of a business enterprise. Like entrepreneur, local and rural entrepreneurship also acquires various talents. In other words, establishing local and rural industries refers to local and rural entrepreneurship.  
The coming of MNCs to Assam and Sonitpur in particular will have overall positive impact on the local and rural entrepreneurs, because entrepreneurs faced various inherent problems like marketing, finance and raw-materials, which can be fulfilled by the big players entering in the retailing sector. Big foreign players would show-case their products and talents to the world community. Infrastructure development by the FDI retailers will also benefit the local and rural entrepreneurs to enter in the new field.

6. Impact on Micro, Small and Medium Enterprises (MSMEs):
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
 (a) Manufacturing Enterprises- The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. The Manufacturing Enterprise is defined in terms of investment in Plant & Machinery.
(b) Service Enterprises:  The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified, vide S.O. 1642(E) dtd.29-09-2006 are as under:
Manufacturing Sector
Enterprises
Investment in plant & machinery
Micro Enterprises
Does not exceed twenty 25 lakh rupees
Small Enterprises
More than 25 lakh rupees but does not exceed 5 crore rupees
Medium Enterprises
More than 5 crore rupees but does not exceed 10  crore rupees
Service Sector
Enterprises
Investment in equipments
Micro Enterprises
Does not exceed twenty 10 lakh rupees
Small Enterprises
More than 10 lakh rupees but does not exceed 2 crore rupees
Medium Enterprises
More than 2 crore rupees but does not exceed 5  crore rupees
FDI in retail has both positive and negative impact on local entrepreneurs and MSMEs also. Even though myriad opinions are being floated on FDI in retail, some SMEs in India are welcoming it. Micro, Small and Medium Enterprises forms the back bone of our nation. It is based on the Gandhian philosophy and only the way to help India becoming self reliance. It contributes 45 percent of the industrial output, 40 percent of Indian export, employing 60 million people, creating 1.3 million jobs every year and producing more than 8,000 quality products for domestic as well as for foreign markets. It also provides the scope to fulfill the dreams of local entrepreneurs by commercializing their talent and resources. MSMEs often act as a nursery of entrepreneurship. This sector also plays a key role in the development of the economy with their effective, efficient, flexible and innovative entrepreneurial spirit.
            The recent decision to allow 51 percent FDI in multi brand retail and 100 percent in single brand retail in Nov. 2011 is one of the major steps to encourage the organized retailing in the country.  The government has ultimately taken the bold decision, which will be benefited to the SMEs. As per the norms, FDI in Retailers are instructed to purchase 30 percent of the product they deal with from the Small and Medium Enterprises (SMEs). This will definitely ensures the development of the SMEs and encourages to produce quality product because foreign players would like to prefer the quality product. The players are also imposed with the restriction of investing 50 percent of their investment on the back end infrastructure, which will indirectly help in the development of SMEs in the rural areas and backward areas.
            The fashion Industry is to benefit from FDI was evident from a year back when Government of India had first announced 51 per cent FDI in multi-brand retail. Textiles and clothing products will be the core component of most of the multi-brand outlets because of its high margin and ability to create differentiation through private labels. With the growing demand of western garments, this sector would be one of the major beneficiaries. Currently, clothing occupies 36 per cent of the overall retail segment and this would increase substantially after more organized retailers enter the market. 
FDI would also have a big impact on the Fast Moving Consumer Goods (FMCG) sector. Storage is a major problem as 20-25 per cent of agricultural products get wasted due to improper storage. Inadequate storage facilities for food and vegetables will be resolved through FDI. As the investment will flow into back-end infrastructure, supply chain will get strengthened. ITC Limited, Procter & Gamble and Unilever are the three biggest consumer goods companies that operate across the globe. These companies would have a substantial benefit if the FDI implementation functions as framed and expected by the policy makers. The food service sector and restaurant sector will get benefitted.
Packing will play a major role by contributing 5.3 percent of the GDP. This industry will be geared-up for the inflow of retailing companies from across the world. This industry vertical is growing at 15 per cent, the second fastest in world. It is expected to be double to 30 per cent within a decade.
7. Analysis of Primary Data:
(i) It is found from the survey that 114 (95 %) respondents are aware of the government’s decision to allow 51 percent FDI in Multi-brand and 100 percent in single brand retailing. (Annexure: 2.1)
(ii) According to the survey, 88 (73%) respondents is in favour and support of the government’s decision to allow 51 percent FDI in Multi-brand and 100 percent in single brand retailing. (Annexure: 2.2)
(iii) 71 (59%) respondent admit that FDI in retails is the opportunity for local entrepreneurs and MSME in Assam in general and Sonitpur district in particular. 18 (15%) respondents believe as threat and only 31 (26%) respondents says no impact on the present status of entrepreneurs and MSMEs. (Annexure:  2.3)
(iv) Majority of the respondents are of the opinion that the opening of FDI in retail will result in substantial growth of sales of their products. Out of them, 52 respondents foresee that the impact on the growth of sales of the product would be excellent (morethan 20%), 38 respondents perceive that the impact would be good (20% to 10%), 24 respondents believe that the impact would be low (1% to less than 10%) . 4 respondents feels that the impact would be negative (less than 1%) and 2 respondent cannot say anything about that growth of sales.  (Annexure: 2.4)
(v) It is found that 100 (84%) respondents believe that FDI in retails would be beneficial for the local framers and agricultural entrepreneurs, 12 (10%) respondents feel negative and 8 (6%) respondents cannot say about it. (See Annexure: 2.5)
 (vi) As per the survey, 60 (50%) respondents are opinion that FDI in retail would have a positive impact on employment whereas 40 (33%) respondents expect no change in the employment. 12 (10%) respondents feel negative impact on employment and 8 (7%) respondents cannot say anything on this. (Annexure: 2.6)
(vii) With regard to quality of product 80 (67 %) respondents believe that quality of the product would improve, 32 (27 %) respondents think no change and 4 (3 %) feel negative impact on the quality of the products and remaining 3 percent respondents have no idea about it. (Annexure: 2.7)
(viii) According to 93 (78 %) respondents supply chain would improve, for 26 (21%) respondents there would no change in the supply chain and one respondent cannot say about it. (Annexure: 2.8)
(ix) As per the survey, 49 (41%) respondents feel that customer group will be attracted toward FDI retailers, 67 (56%) respondents believe that customers will not attract to FDI retailers.  (Annexure: 2.9)

8. Finding: (Based on comments made by entrepreneurs, businessmen, academician, NGOs & public)
(i) FDI in Retail has some positive impact on agro-based entrepreneurs, specially the small tea growers, because it will directly benefit the farmers. The tea farmers in Assam get only 20-30 per cent of the price the consumer pays for their produce from the middlemen. The big retailers prefer to buy produce directly from farmers as they may sell at very competitive prices.
(ii) Retailing market in Sonitpur district as well as in Indian retailing market can hardly affected by FDI in retailing, since local consumers’ behaviours are very typical in nature, they always prefer in bargaining of a product.
(iii)  More than 40 percent seasonal agricultural commodities are wasted due to the lack of cold storage facilities, presently only one sold store is available in the district, which can be improved by MNC in this sector.
(iv) Transportation facilities can get a boost by MNCs or big prayers, by introducing number of refrigerated vans and pre-cooling chambers which is not available at all in the district, can help bring down wastage of goods.
(v) The local entrepreneurs, especially those who are relating to handy-craft sector, will be benefited, their demand of the products will increase and they will find in an international platform for their products. Government should prevent dumping of goods to get rid of negative effect of FDI retailers.

9. Benefits of FDI in Retails:
The following may be regarded as major perceived benefits of allowing FDI in retail in India to MSMEs and others:
(i) Provide Finance- Finance is an important problem of MSME in the country. The problem of finance in this sector is mainly due to two reasons. i.e.  due to scarcity of capital and weak credit worthiness. FDI in retailing would provide an opportunity for cash-deficient domestic retailers to bridge the gap between capital required and raised. (ii)  Enhance Marketing: Marketing is another major stumbling block for MSMEs. They are facing many problems in marketing such as lack of standardization and regularities, poor quality, brand preferences, distribution contacts etc. FDI in Retails would provide more marketing scope for the MSMEs’ products and encourage to improving their quality, maintaining brand specification and minimizing cost.
(iii) Create Competition and check inflation- Supporters of FDI argue that entry of the many multi-national corporations will obviously promise intensive competition between the different companies offering their brands in a particular product market and this will result in availability of many varieties, reduced prices, and convenient distribution of the marketing offers. It will act as an antidote to inflation.
(iv) Improvement in Supply Chain- Improvement of supply chain/ distribution efficiencies, coupled with capacity building and introduction of modern technology will help arrest wastages.
(v) Improvement in Customer Satisfaction- Consumers in the organized retail will have the opportunity to choose between a numbers of internationally famous brands with pleasant shopping environment, huge space for product display, maintenance of hygiene and better customer care. If the market is opened, then the pricing could also change and the monopoly of certain domestic Indian companies will be challenged.
(vi) Improvement in technology and logistics- Improved technology in the sphere of processing, grading, handling and packaging of goods and further technical developments in areas like electronic weighing, billing, barcode scanning etc. could be a direct consequence of foreign companies opening retail shops in India,. Further, transportation facilities can get a boost, in the form of increased number of refrigerated vans and pre-cooling chambers which can help bring down wastage of goods.
(vii) Benefits for the Farmers- Presumably, with the onset of multi-brand retail, the food and packaging industry will also get an impetus. Though India is the second largest producer of fruits and vegetables, it has a very limited integrated cold-chain infrastructure. It will promote welfare of farmers by agriculture growth and thereby increasing their income level.   
(viii) Creation of More and Better Employment Opportunities- The entry of foreign companies into Indian Retailing will not only create many employment opportunities but, will also ensure quality in them. This helps the Indian human resource to find better quality jobs and to improve their standard of living and life styles on par with that of the citizens of developed nations.

10. Drawbacks of FDI in Retails:
The major threats to the domestic retailers in India are specified below:
(i) Domination of Organized Retailers- FDI in single-brand retail will strengthen organized retail in the country. These organized retailers will tend to dominate the entire consumer market. It would lead to unfair competition and ultimately result in large-scale exit of domestic retailers, especially the small family managed outlets (local “mom and pop” stores will be compelled to close down).
 (ii) Create Unemployment- Retail in India has tremendous growth potential and it is the second largest employer in India. Any changes by bringing major foreign retailers who will be directly procuring from the main supplier will not only create unemployment on the front end retail but also the middleman who have been working in this industry will be thrown out of their jobs.
(iii) Loss of Self Competitive Strength- The Indian retail sector, particularly organized retail, is still under-developed and in a nascent stage and that, therefore the companies may not be able to compete with big global giants. If the existing firms collaborate with the global biggies they might have to give up at the global front by losing their self competitive strength.
(iv) Increase in Real Estate Cost- It is obvious that the foreign companies which enter into India to open up their malls and stores will certainly look for places in the heart of the cities. It will result in increase in the cost of real estate in the cities that will eventually affect the interest of the ordinary people who desire to own their houses within the limit of the cities.
(v) Distortion of Culture: Though FDI in Indian retail will indirectly or directly contribute for the enhancement of Tourism, Hospitality and few other Industries, the culture of the people in India will slowly be changed. The youth will easily imbibe certain negative aspects of foreign culture and lifestyles and develop inappropriate consumption pattern, not suited to our cultural environment.


11. Conclusion:
After 6 decades of independence Indian, retail sector must be competent enough to face any global challenge. We cannot oppose, stop or deny FDI or any sort of foreign investment after signing GATT and WTO. FDI in retail is the part of reforms; therefore, preparedness is required to get full benefits of the FDI.  It is definitely beneficial from the customer’s point of view, nobody can deny it. But the economic development of a nation is based on the growth of local entrepreneurs, producers, sellers. Therefore, the government of India must be cautious about the strength of the country’s entrepreneurs. Presently 60% of the entrepreneurs disappear before starting any enterprises. Out of the remaining enterprise 60% are sick. Government should form a strong regulatory body like SEBI, IRDA to regulate the functions of FDI in retail, so that the interest of the local and rural entrepreneurs and MSMEs can be saved and protected. It can be concluded that there should be proper co-ordination and co-operation between Governments as well as the Retail sector players as because FDI in retail with proper policy would be beneficial for the economic development of India.



References:
1. Mukharjee Arpita and Patel Nitisha; Book: Foreign Direct Investment in Retail Sector India.  (2008)
2. Murali Patibandla; Book: Foreign Direct Investment in India’s Retail Sector: Some Issues. Source:Google Book (2012)
3. Bhattacharyya Rajiv; “The Opportunities and Challenges of FDI in Retail in India” Research Paper published in IOSR Journal of Humanities and Social Science Volume 5, Issue 5 (Nov. - Dec. 2012), PP 99-109
4. A Survey Report: The Impact of FDI in Retail on SME Sector by Confederation of Indian Industry.
5. A Survey Report : Impact of FDI in Retail on Micro, Small and Medium Enterprises of India by Confederation of All Indian Traders, New Delhi.
8. Khanka S.S., and Gupta C.B., Book: Entrepreneurship and Small Business Management, Publisher: Sultan Chand & Sons (2009)
9. Report of Prime Minister’s Task Force on Micro, Small and Medium Enterprises Government of India, January 2010
10. http://dcmsme.gov.in/ssiindia/defination_msme.htm: Development Commission MSME, India.



Appendix-I

Schedule related to FDI in retail sector its pros and cons in the district of Sonitpur:
Part-I
1. Name:
2. Sex: Male /Female                                       3. Age:
4. Area of work: Business/ Profession/ Designation/others:
5. Address:
Part-II

a)      Are you aware of the government’s decision to allow 51 % FDI in Multi-brand and 100% in single band retailing?
(i) Aware         (ii) Unaware
b)      Do you support of the government’s decision to allow  FDI in retails?
(i) Support       (ii) Not support                       

c)      Is it opportunity or threat for entrepreneurs and MSME in Assam in general and the Sonitpur district in particular?
(i) Opportunity             (ii) Threat         (iii) No impact (iv) cannot say

d)      Will FDI in Retail improve the sales of products of local entrepreneurs and MSME?
(i) Excellent (more than 20 %) (ii) Good (10% to 20%) (iii) Low (1% to less than 10%)
(iv) Negative (Less than 1%)

e)      Will it be beneficial for the local farmers and agricultural entrepreneurs?
(i) Yes              (ii) No              (iii) cannot say

f)       What will be the impact on the present employment?
(i) Positive       (ii) Negative     (iii) no change  (iv) cannot say

g)      Whether the quality of the product will improve?
(i) Improve      (ii) No change  (iii) Deteriorate (iv) cannot say

h)      What will be the impact on supply chain?
i) Improve        (ii) No change  (iii) Deteriorate (iv) cannot say

i)        Will Indian customer group be attracted to retail store under one roof?
(i) Yes              (ii) No              (iii) cannot say

j)        Your comment on FDI in Retails:



Annexure: 2.1
Awareness of FDI in Retails
Option
Respondents
Percentage
Aware
114
95
Unaware
06
05
Total
120
100

Annexure: 2.2
Support to  the Govt. Decision of FDI in Retails
Option
Respondents
Percentage
Support
88
73
Not support
32
27
Total
120
100

Annexure: 2.3
Opportunity for MSME
Option
Respondents
Percentage
Opportunity
71
59
Threat
18
15
No impact
31
26
Cannot say
0
0
Total
120
100

Annexure: 2.4
Effect on Sale of the product of MSME
Option
Respondents
Percentage
Excellent (more than 20 %)
52
43
Good (10% to 20%)
38
32
Low (1% to less than 10%)
24
20
Negative (Less than 1%)
4
3
Cannot say
2
2
Total
31
100

Annexure: 2.5
Benefit to the Framer
Option
Respondents
Percentage
Yes
100
84
No
12
10
Cannot say
8
6
Total
120
100



Annexure:  2.6
Impact on Present Employment
Option
Respondents
Percentage
Positive
60
50
Negative
12
10
No change
40
33
Cannot say
8
7
Total
120
100

Annexure: 2.7
Quality of the products
Option
Respondents
Percentage
Improve
80
67
No change
32
27
Deteriorate
4
3
Cannot say
4
3
Total
120
100

Annexure: 2.8
Supply chain of the products
Option
Respondents
Percentage
Improve
93
78
No change
26
21
Deteriorate
0
0
Cannot say
1
1
Total
30
100

Annexure:  2.9
Customers Attraction towards FDI retailers
Option
Respondents
Percentage
Yes
49
41
No
67
56
Cannot say
4
4
Total
120
100

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