Mumbai: Union Micro, Small and Medium enterprises (MSME) Minister K H Muniyappa Wednesday said allowing FDI into the sector will not only ensure fund flows but also help the overall development of the segment.
"FDI (foreign direct investment) in MSME will ensure availability of more capital necessary for the overall growth of the sector, which contributes nearly 40 percent to the country's total exports," Muniyappa told reporters after a meeting with the officials of Khadi & Village Industries Commission (KVIC) here.
He also clarified that FDI would be allowed in the sector without impacting the interest of the players.
"We are in favour of FDI in the sector, but at the same time we will not allow the interest of the local players to be impacted. We are currently formulating a detailed plan for the same," he said.
Last month, the government tweaked sourcing norms for FDI and diluted the previous condition to source 30 percent of requirements 'mandatorily' from MSMEs, by stating that sourcing should be done 'preferably from MSMEs'.
The government has allowed 51 percent FDI in multi-brand retail and 100 percent FDI in single-brand retail.
"Investments and FDI is necessary mainly to bring the modern concept of marketing in the sector, which is currently very weak," a KVIC official said.
He said 51 percent investment by private sector is expected in the Khadi Reform and Development Programme initiated by the Asian Development Bank (ADB) with the government, which aims at revitalising the khadi industry through a comprehensive reform package.
"Leading private players in the organised retail sector have shown interest in partnering with us. We are working out the modalities in this regards. We plan to offer them 51 percent stake," the official said.
Meanwhile, the ministry has also proposed to increase the project size to Rs 50 lakh from Rs 25 lakh for the availability of finance with banks and financial institutions.
"We have already held talks with bankers and they have agreed to provide full assistance to the sector," minister said, adding, "besides, the allocation of funds for the sector will be doubled in the 12th Five Year Plan as compared to the 11th plan."