CII for more FDI in Indian small firms

Proposes a single window of information on FDI and no export obligation, among others.

With the government removing the 24 per cent cap on foreign direct investment (FDI) for small and medium enterprise (SME) sector, the Confederation of Indian Industry (CII) has come up with a study suggesting measures that would help attract more investments from abroad into the sector.

Key suggestions of CII include allowing single window of information on FDI, preferably through the Ministry of Overseas Indian Affairs, maintenance of comprehensive statistics on FDI in SME sector, policy guidelines to encourage FDI participation by NRIs, like no export obligation, separate platform for facilitation, automatic approval for 100 per cent FDI from NRIs, and other promotional measures.

"India has the world's second largest diaspora next to China with a substantive presence in all the six continents. However, only 4 per cent of India's FDI comes from the Diaspora. There are no statistics to show the amount of overseas investments received in the SME sector in India," Ramesh Datla, co-chairman, CII SME Forum & managing director, ELICO Ltd, said.

Datla further added: "The fear of FDI in the SME sector, is largely the fear of the unknown. Once they see success, FDI will be embraced widely."

As of now, the ministry of Overseas Indian Affairs promotes investment by NRIs in general, the Department of Industrial Policy and Promotion (DIPP) lays down the policy and processes proposals for NRI investment requiring government approval and ministry of micro, small & medium enterprises (MSME) administers the MSME Act.

"There are different agencies handling policy and implementation of NRI investments into the SMEs, making the procedure complicated and unclear. This leads to a loss of interest of the foreign investor. Thus, we are asking for a single window information for interested investors," Datla said.

Moreover, the study states that the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, does not contain any specific provision regarding FDI into MSMEs. The present Industrial Policy, too, does not distinguish between a medium & large enterprise "" it only has categorisation of small and large industries. The FDI policy also adopts the same interpretation as the Industrial policy.

"From an economic perspective, the higher the FDI Investment, the more attractive the SME sector becomes. What then is the fear of allowing even 100 per cent FDI investment into the sector. The astute Indian businessman is quite capable of looking after his own interest vis-à-vis foreign investment. In fact, it is the foreign Investor (NRI or PIO) whose investment needs to be protected, as he has little knowledge of India and obviously sits far away," Datla added.

In line with attracting investments from abroad, Jawahar Sircar, development commissioner, MSME ministry said during the Pravasi Bhartiya Diwas that the MSME ministry is mulling to create an interactive website which would facilitate exchange of information and collaboration between SMEs in India and Ontario, Canada. Once launched, the model could be replicated with other countries as well.

The ministry of MSME and CII along with the ministry of Small Business and Entrepreneurship, Ontario, will together work on the project. The initial seeding will come from ministry of MSME and a leading private bank is likely to be roped in for the project, Sircar said.

"The SME sector is well developed in Canada and has a lot to offer in terms of technology and know-how. India, in turn, is a fast growing economy and we expect that in the future, investments will flow in from India to SMEs in Ontario and vice versa," Harinder Thakar, minister of small business and entrepreneurship, Ontario, said.