Large and foreign retailers, many of them suffering the impact of a slowdown in business, could be in for more trouble if the recommendations of the ministry of small and medium enterprises (SME) seeking to protect small retailers are enforced.

Supermarket culture: The ministry of small and medium enterprises has said in a note that an estimated 40 million small retailers will lose employment opportunities with the coming of large and foreign retailers. Abhijit Bhatlekar / Mint

The ministry will push for stricter guidelines for wholesale and consumer retailing and favours setting up an enforcement agency for monitoring single brand retail in which 51% foreign direct investment (FDI) is permitted, according to two ministry officials who did not want to be identified.

The ministry, according to the officials, maintains that the supermarket culture will squeeze out India’s small retailers, a view reiterated after a parliamentary trade committee advised the government to go slow on FDI to avoid “cartelization".

That report, by the 42-member trade committee, released in June, also said that the government must stop issuing cash-and-carry licences to transnational companies, adopt a reservation policy for small retailers and assist them in their expansion plans. It suggested that regulation, such as a national shopping mall regulation Act, could be adopted to monitor the sector.

The ministry’s note, a reaction to the report, is expected to be forwarded to the department of industrial policy and promotion, according to the officials. The note says that a large number of small retailers—an estimated 40 million— will lose employment opportunities, according to both the officials who spoke separately to Mint. About 95% of India’s $350 billion (Rs17 trillion) retail business is done by small retailers.

The ministry, which has a mandate to promote small and medium manufacturing and services sector under law, is as yet undecided on whether guidelines or an amendment to the Micro, Small and Medium Enterprises Development Act, 2006, will be necessary for protecting small retailers, according to officials. But experts say that a policy that will seek to support the interests of unorganized retailers will be a positive step when the Act itself has little provisions for industry promotion.

“The Act is just a skeleton, a namesake... Having a legislation (for protection of small retailer) will create a clear policy space for the sector," said P.M. Mathew, director of the Kochi-based Institute of Small Enterprise and Development.

Both opponents and supporters of FDI in the retail business have long demanded a dedicated enforcement agency for the sector. But the issue of raising FDI cap in SMEs has elicited divided response.

Under existing guidelines, FDI in SMEs is permitted up to 24%, but industry lobbies have demanded that the limit be raised to 49%. At present, 100% FDI is permitted under the automatic route in wholesale cash-and-carry trading. FDI in retail trading is banned; and only 51% FDI is permitted in single brand retail.

“Looking at the limited impact of global recession on the small (and) medium sector, it’s important to revisit the agenda for FDI in retails as well as raising the FDI cap because the government’s priority is to promote employment-led growth," said Dharmendra Kumar, director of India FDI Watch, an activist group which opposes big corporation’s entry into the retail sector.

Rasul Bailay contributed to this story.