23 October 2017

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Facing Retail Revolution: Options for MSMEs

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Dr. Manmohan Singh said, in his address to the nation on 21 September 2012 made an attempt to justify ‘reforms’. His speech and arguments summed up the entire debate on economic reforms that he is currently pursuing in areas such as FDI in multi brand retail and reduction of subsidies.

If for him, the withdrawing subsidy and permitting FDI are ‘reforms’,  for many millions of small, micro enterprises, informal sector players, vendors and others in the unorganized sector, ‘reforms’ means something deeper. For them, reforms are something that has implications on their daily lives, as they fight for sustaining their businesses and livelihood. Reforms should really penetrate the system and the fundamental rules of the operational mechanism that regulates businesses, especially at the bottom of the pyramid.

There are around 10 crore MSME retail units, including informal sector players, according to Confederation of All India Traders, (CAIT). Official estimate is that retail trade sector MSMEs alone contributes 24.91 % to employment. And 41 percent establishments’ falls under retail sector. (5th economic survey, 2005)

Protect domestic MSMEs
India being a signatory to World Trade Organization (WTO)’s General Agreement on Trade in Services (GATS), which include wholesale and retailing services also, has no option but to open up the retail trade sector to foreign investment/participation. There are compulsions on Indian government, which has to now live in a global economy as part of WTO and other Free Trade Agreements. There are increasing pressures from European Union and other such economic blocs for further reforms. However, governments have the right to protect the interests of its domestic industry, especially MSMEs.

Reforms and economic sustainability
Mr. V. N Prasad, an economist working with a focus on MSMEs, made an interesting observation about Manmohanomics. He says, Manmohanomics has failed Indian people. Economy and society consists not just very innovative, educated, entrepreneurial and rich people alone. It has different sections such as disabled, old, landless, people who cannot afford to go a hospital, buy medicines and send their children to school.  Majority of the people and probable entrepreneurs would not clear careful scrutiny of a loan sanctioning officer of an Indian public sector bank, if they apply for a loan for their new business venture.

“Nation’s Economic management is not just about balancing budget and better fiscal management alone, it goes beyond” he says and it is also about creating a conducive business climate for MSMEs and poor people’s informal ventures to operate. A responsible state has to create a level playing field for small enterprises and ensure their survival.

What is “reforms” for MSMEs?
Entrepreneurs have to fight and deal with an unfriendly and rent seeking bureaucracy on a day to day basis, despite RTI and transparency movement. There is a serious need to discuss about the meaning of reforms in the developing country context. What do reforms mean to businesses owned and managed by poor people in India, the so called enterprises that alleviate poverty of millions? How are FDI and other recent initiatives helping their business ventures? What are the support that government providing to them?

Building a climate for small enterprises to thrive is the real reform. State intervention and strengthening the effectiveness of existing regulations, if needed, new regulations to protect the interest of a large section of Indian society, is very important and reform is that! Also, it includes protecting small enterprise sector from big players by strengthening anti-monopoly laws, regulatory and policy framework governing retail sector so as to shield MSMEs from unfair competition.  Stricter implementation of existing laws pertaining to labor rights and minimum wages are also important.

Investment flow and long term impact
Foreign investors would bring in money and there will be some revival in economy. If the hidden objective is bringing in money to the country, however, its long term employment impact and implications on MSMEs would be of some concern. Impact assessment studies show that entries of big retails have a negative impact on local economy, small businesses and employment and living standard. ‘Wal-Mart kills three local jobs for every two they create. They reduce retail employment by an average of 2.7 percent in every county they entered. Research from Chicago shows retail employment did not increase in areas where Wal-Mart operate and also employment fell significantly in those adjacent regions.’

Address MSME concerns
Millions of retail trade enterprises, which are service MSMEs, also come under MSMEs. Their sheer number itself makes it a real force, political, electoral and economic force, which can impact decisions in any country. But how far their voices heard and concerns addressed?

Are foreign retail chains going to sell foreign products or domestic products? A serious concern is that India manufactured foreign goods and private labeled or specific retail chain branded products could also appear on shelves, as the time passes. This would result in extermination of local industries.  The trend of big retail chains eventually entering into selling products in their own brand name is yet another trend that being observed. These are real possibilities and matter of concern for manufacturing MSMEs.

When Indian owned shopping malls came up in Noida Sector 18, Mr. SK Jain who was running a retail garment business had to close down his venture. He says, “with shopping malls, traders in Sector 18 Noida, lost 95 percent of their businesses and majority of them had to close down. Now what remains are brand- showrooms or company owned shops”.

MSMEs and local economy
In a country like India, there are a number of manufacturers exist in a neighborhood space, catering only for residences there. They distribute their products through small informal vendors, small and micro retail trade shops. There are experiments and innovations taking place in these manufacturing units at their level, though may not be as we imagine when we hear the term experiments & innovation. Those ventures itself are, in most cases, an experiment in livelihood entrepreneurship.

Traditional supply chain that was helping and catering to MSME units, assisting their product distribution at the local level, would disappear gradually, causing the death of local manufacturing MSMEs in the medium to long term. Mr. Amar Yadav, an entrepreneur says 30 percent procurement reservation meant for MSMEs, do not mean much, or nothing at all. It is 1.5 million MSMEs are only registered and how many of them can meet the needs of WALMART and other giants, he asks.

Empower MSMEs
MSME retailers need to be officially recognized as an industry. Government should declare, small retail sector as an industry and provide assistance and help to compete. Bringing retail sector under the purview of MSMEs would enable them to access benefits, schemes, bank-finance at better rates & terms. Further, this would strengthen retail MSMEs and help emerge stronger to face the challenge that the big retail chains would throw upon them. Government should consider extending special financial support, training programmes, marketing support for the MSME sector so as to enable them to compete in the scenario of the upcoming retail revolution!

 

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