Vous êtes sur la page 1sur 36

IMPACT OF FDI ON INDIAN RETAIL SECTOR

INTRODUCTION
One of the most striking developments during the last two decades is the spectacular growth of F DI in the global economic landscape. This unprecedented growth of global Foreign direct investment (FDI) or foreign investment refers to the net inflows of investment to acquire a lasting management interest (10% or more) in an enterprise operating in an economy other than that of the investor. Foreign direct investment is the sum of equity capital, reinvestment of earnings and other long or short term capital as shown in the balance of payments. It usually involves participation in management, joint venture, transfer of technology and expertise. There are two types of FDI: (a) Inward foreign direct investment and (b) Outward foreign direct investment. Foreign direct investment excludes investment through purchase of shares. Foreign direct investment can be used as one measure of growing economic globalization. FDI in 1990 around the world make FDI an important and vital component of development strat egy in both developed and developing nations and policies are designed in order to stimulate inw ard flows. In fact, FDI provides a win win situation to the host and the home countries. Both co untries are directly interested in inviting FDI, because they benefit a lot from such type of invest ment. The home countries want to take the advantage of the vast markets opened by industrial growth. On the other hand the host countries want to acquire technological and managerial skill s and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of r esources viz. financial, capital, entrepreneurship, technological know- how, skills and practices, access to markets- abroad- in their economic development, developing nations accepted FDI as a sole visible panacea for all their scarcities. Further, the integration of global financial markets pa ves ways to this explosive growth of FDI around the globe. The historical background of FDI in India can be traced back with the establishment of East Indi a Company of Britain. British capital came to India during the colonial era of Britain in India. Ho wever, researchers could not portray the complete history of FD pouring in India due to lack of a bundant and authentic data. Before independence major amount of FDI came from the British co mpanies. British companies setup their units in mining sector and in those sectors that suits their own economic and business interest. After Second World War, Japanese companies entered Indi an market and enhanced their trade with India, yet U.K. remained the most dominant investor in India. Further, after Independence issues relating to foreign capital, operations of MNCs, gained attention of the policy makers. Keeping in mind the national interests the policy makers designed the FDI policy which aims FDI as a medium for acquiring advanced technology and to mobilize foreign exchange resources. The first Prime Minister of India considered foreign investment as necessary not only to supplement domestic capital but also to secure scientific, technical, and i

ndustrial knowledge and capital equipments. With time and as per economic and political regime s there have been changes in the FDI policy too. The industrial policy of 1965, allowed MNCs to venture through technical collaboration in India. However, the country faced two severe crisis in the form of foreign exchange and financial resource mobilization during the second five year pla n (1956 -61). Therefore, the government adopted a liberal attitude by allowing more frequent equ ity participation to foreign enterprises, and to accept equity capital in technical collaborations.

OBJECTIVE
The objective of this research work is to check the argument that

whether the FDI should be allowed in Retail or not .The most important Element of the paper is to analyze FDI and its relationship with Indian Economy. This paper scrutinizes the relationship of Foreign Direct Investments with the Indian retail sector. whether FDI will prevent the growth of domestic organized retail industry and why foreign retailers are interested in India and also analyze benefits and problems of allowing FDI in India. whether it will result in closure of small retail stores by the strategies they(foreign retailers) are adopting to enter in Indian retail sector. whether FDI would serve the purpose of much needed capital and bring a boom in this sector and to enhance infrastructure and generate employment. who can suffer from Profit & Loss due to F.D.I in Retailing because Small retailers, farmers, and even large organized competition have concerns about the entry of large global chain stores. To make recommendations on how and under what conditions can FDI be allowed in the Indian Retail Sector so as to reduce the risk of lifting restrictions in the multi brand segment.

Topic 1

FDI IN INDIAN RETAIL SECTOR

OBJECTIVE

The objective of this research work is to check the validity of the argument that

First, whether FDI will prevent the growth of domestic organized retail industry. Second, whether it will result in closure of small retail stores, the so-called mom-and-pop stores and third, whether that it will disrupt the social community and the given way of life. And also whether FDI would serve the purpose of much needed capital and bring a boom in this sector and to enhance infrastructure.

ABSTRACTS

FDI in retail industry means that foreign companies in certain categories can sell products throug h their own retail shop in the country. At present, foreign direct investment (FDI) in pure retaili ng is not permitted under Indian law. Government of India has allowed FDI in retail of specific b rand of products. Following this, foreign companies in certain categories can sell products throug h their own retail shops in the country.

REVIEW OF LITRATURE

It is a very positive step and it will encourage international brands to set up shop in India. On the other hand, this will also lead to competition among Indian players. it will be the consumers who stand to gain,'' This would not change the market dynamics immediately as it will take some time for these plans to fructify. The growing dominance of multinational companies in the country's $ 200 billion retail business, had warned that any move to increase FDI in the retail sector would r uin the business of small and medium traders scattered over the country Organized retailers in In dia are opposing the entry of MNCs in retail trading because of their predatory pricing strategy th at wipes out competition, when the Government decides to allow foreign players to enter the reta il space, it should first restrict them to lifestyle products segment before permitting them to sprea

d their wings into other areas like grocery marketing that has a direct impact on `kirana stores'. F DI in retail trade has forced the wholesalers and food processors to improve, raised exports, and t riggered growth by outsourcing supplies domestically. The availability of standardized products has also boosted tourism in these countries. FDI in retail sector has been a key driver of producti vity growth in Brazil, Poland and Thailand. This has resulted in lower prices to the consumer, m ore consumption and higher profit for the producer. starting with Ahmedabad, to set up malls. It will spend Rs 30-50 crore on each mall, that are to b e modeled after those in Dubai and East Asia. The international players currently in India include McDonald's, Pizza Hut, Dominos, Levis, Lee, Nike, Adidas, TGIF, Benetton, Swarovski, Sony, Sharp, Kodak, and the Medicine Shoppe. Global players are entering India indirectly, via the lice nsee/franchisee route, since Foreign Direct Investment (FDI) is not allowed in the sector. Despite all these developments, the organized retail business still comprises a small proportion of the total size of the Rs 9,00,00-crore ($200 billion) retail sector. Retail business growing at 5-6 p er cent per annum. The size of organized retailing was estimated around Rs 26,000 crore in 2004, about three per cent of the total. However, it is now set to grow at 25-30 per cent per annum. In d eveloped countries, organized retailing makes for over 70 per cent of the total business.

CONCLUSION

The foreign direct investment (FDI) in the Indian retail sector should be allowed in a phased man ner so that it could serve the purpose of much-needed capital and bring boom in the sector.

1.FDI should be gradually allowed first in a relatively less sensitive sectors like garments, lifestyl e products, house ware and entertainment."

2. Alternative funding mechanisms and investment opportunities should be considered like FIIs a nd venture capital in the primary market, besides FDI. Hence they should be legalized and encou raged in the primary market.

3.She said the industry needed time for capital formation, which would take at least two-three ye ars. The gradual inflow of FDI should not be a hindrance for the growth of the retail sector.

The first argument is passes simply because with the entry of Reliance, Tatas and other large do mestic players the domestic retail industry has surely come of age. These corporates dont need p rotection. Actually, if these infants are protected any longer they have good chances of becomin g delinquent adults. Soon enough, monopoly rents will begin to accrue and bad habits will get en trenched and it will then be more difficult to open the sector. Domestic players have the best loca tions anyway and a clear head start. The equity argument does not have solid empirical basis. As the ICRIER study on the same subject has shown, liberalization of retail raises overall economic welfare and does not result in loss of employment. Some restructuring will take place but local markets will not close down. My favorite example is that the entry of Haldiram has not led to the demise of Nathus and Agarw al mishthan bhandars. Both can coexist as they fulfill different needs and serve different clientele. Organized retailing generates additionality of demand by reducing costs, lowering prices and als o improves returns to producers by eliminating unnecessary intermediaries. The third argument h as greater substance. Malls could lead to greater urban anonymity and a complete break down of the bazaar culture and the disappearance of the down town space that has its own charm. But in France, Germany, the Nordic countries and also other parts of Europe, experience has shown that local communities can thrive if they are empowered and involved in urban planning. Organized r etail does not necessarily result in the dreaded mid-west. So FDI in retail improves growth prosp ects, does not harm equity and discourages monopoly rents and therefore should be allowed.

Topic 2

WHAT IMPACT RETAIL WILL HAVE AFTER FDI

OBJECTIVE
The objective of this research is that whether the FDI should be allowed in Retail or not and moreover wh at impacts the retail sector more, specially the unorganized sector, the money flow or the consumers min d and their habits.

FDI in retailing. However, such arguments are largely based on perception and there has not bee n serious academic research in this area. To fill this lacuna, this survey-based study analyses the current retail scenario in India, investigates the growth across different segments of retailing and evaluates the likely impact of allowing FDI on various stakeholders in different retail segments. Experiences of other countries in allowing FDI and its impact are also discussed

ABSTRACTS

In India 98% of the retail sector consists of counter-stores and street-vendors. With no large players, inad equate infrastructure and a small affording population that believed in saving rather than spending, Indian retail never attracted the interest of large corporations. That was till they realized that retail in India is a U SD 320 billion dollar industry, growing at CAGR 5% and contributing to 39% of the GDP.

foreign players are entering the market through different routes. The entry process and their perc eption about the Indian market are analyzed. The study investigates the structural, regulatory, fis cal and other barriers affecting the performance of retail trade and suggests reforms for the remo val of such barriers. It also provides valuable policy inputs in terms of the time frame in and the process through which the Indian government can open up this sector to FDI so as to maximize t he welfare and minimize the adjustment. It also lists the conditions that may be imposed on forei gn retailers if FDI is allowed.

REVIEW OF LITRATURE

The Indian consumer has undergone a remarkable transformation. Just a decade or two ago, the I ndian consumer saved most of his income, purchased the bare necessities and rarely indulged hi mself. Today, armed with a higher income, credit cards, exposure to the shopping culture of the west and a desire to improve his standard of living, the Indian consumer is spending like never b efore. Organized retail with its variety of products and multitude of malls and supermarkets is fu eling his addiction. His new mentality, in turn, is fueling the growth of organized retail in India. FDI in Multi-Brand retailing is prohibited in India. FDI in Single-Brand Retailing was, however, permitted in 2006, to the extent of 51%. Since then, a total of 94 proposals have been received til l May, 2010. Of this, 57 proposals were approved. An FDI inflow of US $ 194.69 million (Rs. 90 1.64crore) was received between April, 2006 and March, 2010, comprising 0.21% of the total F DI inflows during the period, under the category of single brand retailing. The proposals received and approved related to retail trading of sportswear, luxury goods, apparel, fashion clothing, jew ellery, hand bags, lifestyle products etc., covering high-end items. Single brand retail outlets with FDI generally pertain to high-end products and cater to the needs of a brand conscious segment o f the population, mainly attracting a brand loyal clientele, which often has a pre-set positive disp osition towards the specific brand. This segment of customers is distinctly different from one that is catered by the small retailers/ kirana shops.

Moreover, this research paper talked about young shoppers, higher income, urbanization, the lure of organized retail, the different strata of the consumer i.e., The consumer of today, at least what the multinationals are targeting, is popularly known as the aspiring India the middle income se gment which is growing faster than ever

Organized Retail form accounts for a painfully low 2 per cent of the retail industry, but is growin g at a healthy 35 per cent and is expected to cross the INR 1000 billion mark by 2010.Organized retail remained a dormant sector largely due to the lack of infrastructure for large-scale retail, abs ence of product variety and a conservative Indian consumer. Today the flood of products in the market coupled with a wealthier, more informed Indian consumer have created the atmosphere fo r the entry of organized retail to tap into the $320 billion Indian retail industry. Despite all the op timistic projections of organized retail in India, a number of improvements in a number of areas will be required for organized retail in India to truly live up to its enormous potential. China is witnessing robust economic growth and increasing urban and rural incomes are fueling consumption level in this vast and complex retail environment. According to Euro monitor, retail sales in China, which amounted to nearly USD 554 billion in 2003, were expected to grow rapidl

y to reach USD 1100 billion by 2011.

CONCLUSION

This paper lays out before the reader the state of the Indian retail sector at a moment in time whe n it is in great flux. Almost every two months we see big corporations who had previously shied away from the retail industry, announcing huge investments into the sector. Companies already i n the market are coming up with new formats almost every quarter. Coupled with the economy g rowing in leaps and bounds and the government at the center obliging with favorable policies, th e retail sector is a bus no one wants to miss in India. However, to succeed in India requires know ing whats on the mind of the Indian consumer, what works for him and what does not, and unde rstanding that global products and pricing need to be customized to fit with the local scheme of t hings. The Unorganized sector have Low Productivity, but Still Successful .It does not reflect the mar ket share or potential of the unorganized retail sector when it comes to catering to the Indian con sumer. For unorganized retail in India the market mantra is convenience i.e., Home delivery, cr edit, proximity. Without having a strategy in place for the Indian consumer market in place, foreign retails would find it tough to compete with the local organized retailers and the mom and pop shops; local retai lers with their recent entry into the market should try to leverage their knowledge of the consume rs and experiment with formats to see how they can capture the maximum market share. In the fe w years to come, it would be interesting to see who comes out on top and what the winning strate gy is, and also why the strategy succeeded and others failed. So, This paper suggest that the FDI should be allowed in the Indian Retail sector but the deciding factor for success of the FDI in Retail would be the consumers and their likes and dislikes.

Topic 3

FDI IN RETAIL-INVITING MORE TROUBLE

OBJECTIVE

The objective of the study is to debate on whether to allow FDI in Retail. While the anti-FDI lob by seems to have a distinct advantage in terms of numbers with the left parties and the BJP takin g official positions against it, in addition to the many Congress MPs who have spoken against it, the pro FDI ranks draws much heavyweight support from among the treasury benches and the inf luential English media. The Prime Minister himself has indicated his leanings and has had a wel l-publicized meeting with the Wal-Mart CEO, Mr. Joe Menzer. In addition to Dr. Manmohan Sin gh, many of his ministerial colleagues like Finance Minister, Commerce Minister and Civil Supp lies Minister have time and again publicly stated their support for FDI in Retail. Nevertheless the numbers seem against the government and it has therefore committed itself to formulating a polic y that will take into account all concerns, both for and against.

ABSTRACTS

Retailing is one of the few sectors where foreign direct investment (FDI) is the matter of debate a t present. In this paper More bad than good aspects have been showed as FDI in Indias Retail S ector: More Bad than Good was the first to clearly stake out a position against the entry of FDI i nto Retail. The entry of Foreign Direct Investment (FDI) in the Retail Sector seems to have become the next frontier for conquest by the pro MNC forces of liberalization. All the three major trade and indus try associations have been actively canvassing for this. Speaking at the Images Fashion Forum 2 005 in Mumbai on January 19, 2005 the Minister for Commerce, Kamal Nath, has been quoted a s saying you wont be disappointed for long.This is despite the warning in the same conference by Paul Etgart a former director of the giant UK retailer TESCO that Indian retail business shou ld not be fooled by partnership offers by global retail giants because they want 100 percent contr ol and eventual ownership. He also told the audience to urge your government to retain your st rict FDI regulations, (for) global retail giants are very smart and clever to tackle local cultural an d political obstacles. India must beware. The proponents of FDI in Retail argue as to how FDI in Retail will transform the supply chain be nefiting farmers and small producers. The study made by department of consumer affairs and IC RIER strongly advocates that foreign direct investment should be allowed in retailing since it w ould speed up the growth of organized formats, .The power of Wal-Mart is such that, it reversed

a hundred year history in which the manufacturer was powerful and the retailer was sort of the va ssal. Now the retailer, the mass global retailer is the centre of power and the manufacturer becom es vassal, who has to do the bidding of the retailer. It will be better to follow the Chinese model of caution and hurrying slowly. China just allowed FDI in retail in 1992 and the cap was at 26%.After 10 years the cap was raised to 49% when loca l chains had sufficiently entrenched themselves. 100% FDI in retail was permitted only in 2004, after the infant retailing industry had acquired some muscle

REVIEW OF LITERATURE
Retail and wholesale trade is the single largest component of the services sector in terms of contr ibution to GDP. Its massive share of 14% is double the figure of the next largest broad economic activity in the sector. The retail industry comprises of organized and unorganized sectors. Organi zed retailing refers to trading activities undertaken by licensed retailers, i.e., those who are regist ered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail c hains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, fo r example, the local kirana shops, owner operated general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc. Unorganized retailing is by far the prevalent form of trade in India constituting 98% of all retailing trade, while the organized trade accounts for the r emaining 2%. Our work force is 422 millions large and the organized sector only employs 27 million people. T herefore, it is clear that the self-employed retail sector is a safety valve that allows people the op portunity to fend for themselves when the government fails to create jobs. The study also argued that the two facts, i.e. that the unorganized retail sector of small and mediu m retailers employs over 40 million; and that we have 11 retail outlets for every 1000 people .Ret ail in India is mostly the millions of tiny shops and millions more on handcarts and pavements. H ence the study argued that entry of large format mass retailers like Wal-Mart is fraught with man y risks. It must also be borne in mind that mass retailers like Wal-Mart do not cater to the high en d consumers like branded retailers like Marks & Spencer or even fast food retailers like McDona lds or Dominos do. Wal-Mart mostly retails what the bazaar with its numerous shops already pro vides. Every Wal-Mart must be seen as an entire bazaar or market.

10

The National Sample Survey revealing that Fruits and vegetables only account for 9.88% of urba n household expenditure. It is widely agreed that the supply chain that links the Indian producer t o the domestic consumer is primitive, outmoded and wasteful. FICCI has estimated the total retail business to be Rs. 98,00,000 crores or 44% of GDP. Food ret ail trade is a very large segment of the total economic activity of our country, accounting for 63 % of total retail sales in the economy. One of the principal reasons behind the explosion of retail outlets and its fragmented nature in the country is the fact that retailing is probably the primary f orm of disguised unemployment/underemployment in the country. Whatever be the size of the av erage Indian retailer in the unorganized sector, it is quite evident that even Indian retailers in the organized sector will be unable to meet the onslaught from a firm such as Wal-Mart if and whe n it comes. With its incredibly deep pockets Wal-Mart will be able to sustain losses in its Indian operations for many years till its immediate competition is wiped out.

CONCLUSION

In the Indian perspective, any policy that creates jobs is good policy. Any Industry, Indian- or for eign-owned, that generates employment is welcome. The question over foreign direct investment (FDI) in retail is not as much about ownership as about jobs. This is all about the more bad than good of the FDI in Retail. Retailing is probably the primary form of disguise unemployment/u nderemployed in the country. Since no two supermarket chains will operate in the same domain, farmers will have no choice b ut to comply with the lower prices offered by the retailer. Supporters of FDI in retail trade talk of how ultimately the consumer is benefited by both price r eductions and improved selection, brought about by the technology and know-how of foreign pla yers in the market. This in turn can lead to greater output and domestic consumption. This could even be true. But nevertheless it cannot mitigate the important factor against FDI driven modern retailing in that it is labour displacing as it can only expand by destroying the traditional retail s ector. Clearly till such time we are in a position to create jobs on a large scale in manufacturing, i t would make eminent sense that any policy that results in the elimination of jobs in the unorgani zed retail sector should be kept on hold.One can only speculate on the quality of such a policy th at seeks to address two so divergent and opposed viewpoints.

Topic 4

IMPACT OF FDI IN RETAIL SECTOR

11

OBJECTIVE OF THE STUDY:-

The objectives of the present study are as follows: a) To know impact of foreign direct investment in the retail sector. b) To know the real condition of the retail sector. c) Get information about who can suffer from Profit & Loss due to F.D.I in Retailing. d) To know the govt. FDI rules and regulations.

ABSTRACTS

Indian retail market is the world's largest retail market, 1.5 crore retailers engaged in the retailing. Huge population is the main reason, and another reason is strong economy of the India. In India un-organized retailing is dominant because it is useful for the Indian living condition, 94% unorg anized retailers providing services to the Indians. In the organized sector some corporate compan ies are investing and doing the retail business but it is Indian companies. But now Indian Govt. is permitted for the entry of the foreign Investment in the Indian retail sector. This F.D.I is for the 51 %. Since the 1991 the blowing wind of Liberalization, Privatization, Globalization in India w hich was invited by Former Finance Minister Mr. Manmohan Singh.

REVIEW OF LITERATURE

The retail industry is divided into organized and unorganized sectors. Organized retailing refers t o trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. Unorganized retailing, on the other hand, refers to the tra ditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/bee di shops, convenience stores, hand cart and pavement vendors, etc. Retailing is the interface betw een the producer and the individual consumer buying for personal consumption. This excludes di

12

rect interface between the manufacturer and institutional buyers such as the government and othe r bulk customers. A retailer is one who stocks the producer's goods and is involved in the act of s elling it to the individual consumer, at a margin of profit. As such, retailing is the last link that co nnects the individual consumer with the manufacturing and distribution chain. The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. AT Kearney, th e well-known international management consultancy, recently identified India as the 'second mos t attractive retail destination' globally from among thirty emergent markets. It has made India the cause of a good deal of excitement and the cynosure of many foreign eyes. With a contribution o f 14% to the national GDP and employing 7% of the total workforce (only agriculture employs m ore) in the country, the retail industry is definitely one of the pillars of the Indian. Due to serious entry by Multinational and giant Global retailers into the Indian Market has created and as well i nvited to the new storm. As Government wants to more investment in the retail sector for more e mployment and best service to the customers. But in the mind of retailers fear about the foreign i nvestment, it will be destroy the business of its. Customer is confused about what will be the prof it he can get, supplier also confused. So what is actual position of it, what is the impact of that, w hat are the retail conditions?

CONCLUSION

In this research paper, the objectives of the paper have been achieved. It has been said that, It is i mpacting on the several sectors that are not only impacting on the retailers; it is impacting Indian Economy, producers, suppliers and farmers. But with that opposition of the FDI has to know wha t the recommendation of the FDI, Govt. is not directly permitted to the FDI in the retail sector, it puts some conditions and that is useful for the protection for the retail sector of India. In that mai n condition is it can invest in the city which population is more than 10 lacs. it can't invest in the below 10 lacks population cities it's beneficial for the retailers who doing business in except this area. The semi urban areas retailers not have to fear about it because it can't open the store in that area. Another condition is it can invest up to 41% in the multi brand superstores. With that gover nment is permitted 100% FDI in the single brand superstores. FDI is useful for the generating for the economy, it's improving employment. It is also useful for the more infrastructure facility for the farmers use like more warehouses, cold storages, improvement in the supply chain etc. After all this for the accepting change and improving better service to the customer need of the FDI is useful but with that it is harmful for the Indian retailers. FDI is improving the employment, it can near about 1crore employment can be providing but what about current 10 crore retailers and wh at about indirect dependent on the retailing. Another fear is FDI can do business only in the big c ities but in the future it will provide service to the urban or semi urban areas, and it is effecting o n the that areas retailers.

13

Topic 5 : Foreign Direct Investment in Indias Retail Bazaar:Oppounity and Challenges OBJECTIVE

The objective of the study is to know the opportunities and challenges related to the FDI in retail bazaar. In the past few decades large retailers have experienced substantial growth around the wo rld. At the same time, public outcry over the impact of these chain stores on other retailers and lo cal communities is reported around the world. Small retailers, farmers, and even large organized competition have concerns about the entry of large global chain stores.

ABSTRACTS

Despite encouraging signs, Indias retail market remains largely off-limits to large international r etailers like Wal-Mart and Carrefour. Opposition to liberalizing FDI in this sector raises concerns about employment losses, unfair competition resulting in large-scale exit of incumbent domestic retailers and infant industry arguments to protect the organized domestic retail sector that is at a nascent stage. Based on international evidence, we suggest that allowing entry by large internatio nal retailers into the Indian market may help tackle inflation especially in food prices. Moreover, technical know-how from foreign firms, such as warehousing technologies and distribution syste ms can improve supply chain efficiency in India, in particular for agricultural produce. Better lin kages between demand and supply have the potential to improve the price signals that farmers re ceive and also serve to enhance agricultural and other exports.

REVIEW OF LITRATURE

India is now the last major frontier for globalized retail. In the twenty years since the economic li beralization of 1991, Indias middle class has greatly expanded, and so has its purchasing power. But over the years, unlike other major emerging economies, India has been slow to open its retail

14

sector to foreign investment. Recent signals from the government however suggest that this may be about to change: global supermarket chain stores such as Wal-Mart (United States), Carrefour (France), Marks & Spencer and Tesco (United Kingdom), and Shop rite (South Africa) may final ly be allowed to set up shop in India. Foreign direct investment (FDI) in the retail sector in India is restricted. In 2006, the government eased retail policy for the first time, allowing up to 51 per cent FDI through the single brand retai l route.Since then, there has been a steady increase in FDI in the retail sector, and the cumulative FDI in single-brand retail stood at $195 million by the middle of 2010 (DIPP, 2010). Foreign investment in the single-brand retail sector in India has been resilient to the global econo mic crisis of 2007-08. Given Indias large population and rapidly expanding middle-class, there i s robust and growing demand and a rapidly expanding market. According to the Department of Industrial Policy and Promotion (DIPP) of the Government of In dia, single-brand retail comprises those retailers selling products of a single brand only, such t hat products should be sold under the same brand internationally; and single-brand product retaili ng covers only products which are branded during manufacturing. In this category, FDI is allowe d to the extent of 51 per cent. From 2006 to March 2010, around 94 foreign firms applied to inve st through the single-brand route of which 57 were approved. Consequently, the percentage incre ase in FDI flows in the retail sector between 2008 and 2010 was even higher than that in sectors such as the services sector, trading and telecommunications, which have a much higher share in t he country's overall FDI (DIPP, 2010). In contrast, no FDI is allowed in the multi-brand retail category. This includes all firms in organi zed retail that seek to stock and sell multiple brands, such as large international retailers like Wa l-Mart and Carrefour. This is the sector that is most under dispute. The third segment, called cas h and carry, refers to wholesale retail. The government defines this segment as the sale of good s and merchandise to retailers, industrial, commercial, institutional or other professional business users or to other wholesalers and related subordinated service providers. In India, FDI of 100 pe r cent is permitted in this segment. The data from private consulting company reports suggest that growth in the retail market has be en rapid despite major restrictions on FDI. In the third-quarter report of 2010, the BMI India Ret ail Report forecasts that the total retail sales will grow from US$ 353 billion in 2010 to US$ 543. 2 billion by 2014.1 An important consideration, the report suggests, is the fast-growing middle a nd upper class consumer base. The analysis also suggests that in the next few years there will be major opportunities in India's smaller cities.Even if growth is more conservative than estimated, t he spill-over effects of this rapidexpansion could be felt by many other sectors of the economy. A report published by Knight Frank India in May 2010 looks at the question of land and availabl e retail space. It estimates that, during 2010-12, around 55 million square feet of retail space will

15

be ready in the major cities like Mumbai There are number of concerns have been raised about opening up the retail sector for FDI in Indi a. The first concern is the potential impact of large foreign firms on employment. A second relat ed concern is that opening up FDI may lead to unfair competition and ultimately result in large-s cale exit of incumbent domestic retailers, especially the small family-owned business. Given the large unorganized component of the retail sector, this is a major concern. A third concern raised by domestic incumbent firms in the organized retail sector is an infant industry argument: that thi s sector is under-developed and in a nascent stage. In this view, it is important that the domestic r etail sector grow and consolidate first, before being exposed to foreign investors.

CONCLUSION

Indias retail sector remains off-limits to large international chains especially in multi-brand retai ling. A number of concerns have been raised about opening up the retail sector to FDI in India. T he first concern is the potential impact of large foreign firms on employment in the retail sector. A second related concern raised in the DIPPs report is that opening up FDI would lead to unfair competition and ultimately result in large-scale exit of incumbent domestic retailers, especially t he small family-owned business. A third concern raised by domestic incumbent firms in the orga nized retail sector is that this sector is under-developed and in a nascent stage. The paper says ab out various opportunities and challenges like lowering inflation and food prices, benefits of F DI and Competition in Organized Retail in India, Improving Distribution and Warehousin g Technologies , Employment Effects and Small Domestic Firms Challenges for Foreign Fi rms in Organized Retail. In this paper we argue that the potential benefits from allowing large retailers to enter the Indian retail market may outweigh the costs. Evidence from the United States suggests that FDI in orga nized retail could help tackle inflation, particularly with wholesale prices. It is also expected that technical know-how from foreign firms, such as warehousing technologies and distribution syste ms, for example, will lend itself to improving the supply chain in India, especially for agricultura l produce. Creating better linkages between demand and supply also has the potential to improve the price signals that farmers receive and by eliminating both waste and middlemen also increase the fraction of the final sales prices that is paid to farmers. An added benefit of improved distribu tion and warehousing channels may also come from enhanced exports. Indias experience betwee n 1990-2010, particularly in the telecommunications and IT industries, showcases the various be nefits of opening the door to large-scale investments in these sectors. Arguably, it is now the turn of retail.

16

Topic 6 : Investment in Retail The Foreign Direct Investment scenario

OBJECTIVE
The main objectives of this research paper have three dimensions: 1. Understand the FDI culture in India 2. Discussion on the policy issues that would address Indias relative lack of success in attracting FDI 3. Reveals the Expanding Opportunities for Global Retailers with reference to the retail sector

ABSTRACT
Invest in India is an initiative to market India as an investment destination all over the globe, to p rovide a networking platform to the Indian businesses at a global level and to provide informatio n to the international investors about investment opportunities in India. It is the policy of the Gov ernment of India to attract and promote productive Foreign Direct Investment (FDI) from non-re sidents in activities which significantly contribute to industrialization and socio-economic develo pment. FDI. Based on the objective analysis, the key recommendations towards attracting FDI are revea led like allow 100 % FDI in retail and Small & Medium Enterprises (SME), develop a strategic v ision for FDI with focus on latest technology, reduce the transaction costs & improve the infrastr ucture, international and domestic entrepreneurship, decentralize the administration process, redu ce overly bureaucratic FDI facilities.

REVIEW OF LITRATURE

FDI Culture in India- there exists a plethora of boards, committees, and agencies that have been c onstituted to ease the flow of FDI. A call to one agency about their mandate and scope usually re sults in the quintessential response to call someone else. Reports from FICCI and the Planning C ommission place investor confidence and satisfaction at an all time high; citizens too deserve to be clued in on the government bodies are doing. According to the current policy FDI can come in to India in two ways. Firstly FDI up to 100% is allowed under the automatic route in all activities

17

/sectors except a small list that require approval of the Government. FDI in sectors/activities und er automatic route does not require any prior approval either by the Government or RBI. Policy Issues- In 2010 Consumer Affairs Ministry has given green signal to allow 49% FDI in m ulti-brand retail.Recently The union government has sanctioned 51% foreign direct investment in multi-brand like Wal-Mart, Carrefour, Tesco and upto 100% in single brand retail like Gucci, No kia and Reebok. The new policy will allow multi-brand foreign retailers to set up shop only in cities with a popul ation of more than 10 lakhs as per the 2011 census. There are 53 such cities. This means that big retailers can move beyond the metropolises to smaller cities. Foreign retailers will be required to put up 50% of total FDI in back-end infra-structure excluding that on front-end expenditures. Expanding Opportunities For Global Retailers With Reference To The Retail Sector 1. Carrefour, the worlds second-largest retailer, has opened its first cash-and-carry store in India in New Delhi. Germany-based wholesale company Metro Cash & Carry (MCC) opened its second wholesale centre at Uppal in Hyderabad, taking to its number to six in the country. 2. Electronic retail chain major, Next Retail India, plans to open 400 showrooms across the country during January-March 2011 increasing the total number of retail stores to 1,000 by the end of the fiscal year 2010-11. 3. Jewellery retail store chain Tanishq plans to open 15 new retail stores in various parts of the country in the 2011-12 fiscal. 4. V Mart Retail Ltd, a medium-sized hypermarket format retail chain, is set to open 40 outlets over the next three years, starting with 13 stores in 2011, in Tier-II and Tier-III cities. 5. Future Value Retail, a Future Group venture, will take its hypermarket chain Big Bazaar to smaller cities of Andhra Pradesh, with an investment of around US$ 1.54 million to US$ 4.41 million depending on the size and format. 6. RPG-owned Spencer's Retail plans to set up 15-20 new stores in the country in 2011-12. 7. Spar Hypermarkets, the global food retailing chain of the Dubai-based Landmark Group, expects to start funding its India expansion beyond 2013 out of its local cash flow in the country. So far, the Landmark Group has invested US$ 51.31 million in setting up five hypermarkets and plans to pump in another US$ 51.31 million into the next phase of expansion. 8. British high street retailer, Marks and Spencer (M&S) plans to significantly increase its retail presence in India, targeting 50 stores in the next three years. 9. Spain's Inditex, Europe's largest clothing retailer opened the first store of its flagship Zara brand in India in June 2010. It further plans to open a total of five Zara outlets in India.

18

CONCLUSION
Amidst todays time of fierce competition and a quest to achieve and enhance a substantial level of economic and social development; each and every nation is trying to liberalize its economic p olicies in order to attract investments from not only, domestic players, but also from magnates all across the globe. FDI is a superb conduit for the transfer of technology and know-how to develop ing countries. This message has not been lost on India's policy makers. They have though until th e decade of the nineties attempted to regulate and control its spheres of activity and the contractu al forms of foreign enterprise participation in the economy. The framework of policies they put i n place was guided by the desire to limit foreign control of economic activity but at the same tim e take advantage of the technology and know how provided by foreign capital. This attempt at ri ding two horses in tandem, a complex feat, inevitably resulted in a complex and cumbersome bur eaucratically guided FDI regime and earned India the reputation for hostility towards FDI.

Topic 7 : FDI IN RETAIL SECTOR OF INDIA A BOON OR BANE


OBJECTIVE
The most important Element of the paper is to analyze FDI and its relationship with Indian Economy. This paper scruitinizes the relationship of Foreign Direct Investments with the Indian retail sector.

19

ABSTRACT
In this dynamic environment of today when winds of change are sweeping across the globe the international community is ready to integrate itself with the Indian economy. The govt. encouraged by the outcome of economic policy of 1991 in India, has proposed retail reforms mainly as 100% FDI in the retail sector in India. It may benefit by bringing in investment into development of complete backend infra structure like cold chain & supply chain enhancing efficiency of food chain, as well as eliminating the exploitative system of middlemen which bleeds the farmers and squeezes the consumers, but may not increase purchasing power of people and provide more placements to repair our sick economy. However, the Indian government must take timely and prudent actions to contain this revolution & safeguard the health of the Indian retail sector to stabilize themselves against competition from the giant players of the global economy in the present state of slowing growth, stubborn inflation & widening fiscal deficit in the country.

REVIEW OF LITRATURE

India, a country with the second largest economic growth rate in the world, has the major advant age in its vastness and is growing bigger day by day. Most of the urban cities present a contrastin g view of the needy face of India along with high power and glamour dragged in via an accelerati ng economic growth and globalization as huge malls and international brands have also squeezed their way in too. This potentially huge market shift has been brought about by a change in the ret ail sector; thanks to Foreign Direct Investments (FDI). The Indian economy is one of the fasted growing economies of the world. Retailing in India is gr adually inching its way to becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping. I n sharp contrast with traditional retailing modern retail has entered Indian markets as sprawling s hopping centers, multi-storied malls and huge complexes offer shopping, entertainment and food all under one roof. Retail marketing is one of the pillars of our economy and accounts for about 1 5% of its GDP & is estimated to be US$ 450 billion.The retailing revolution is emerging along th e lines of the economic evolution of the society.For a developing economy like india, higher FDI risk a negative a balance since its players can not match the potential of the highly stable investor s outside India. Although these are mere speculations, they provide an insight into the two perspe ctives that surround the Retail Sector of India today. The retail sector of India is prominently divided into organized and unorganized retail trade shop

20

s, with the latter making up 97% of it.India is now looking to expand organized retailing to 10% of the Indian Retail Sector. To make that goal possible, it needs to rely on providing competition to the locals by bringing in foreign investors. India has just glimpsed a view of modern retailing in the form of high rise malls, super markets and a luxurious shopping experience. It can account for much more and revolutionize the Indian Retail Sector, given a few more years. Increased FDI will result in higher global integration and greater chances of traditional retailers to access the international community.

CONCLUSION

The modern form of retailing is expected to occur at a cost of heavy displacement of labour beca use FDI prone to affecting most sensitive issue to Indian economy: employment. By allowing FDI in retail, India may soon be looking at a modern version of the farangi (foreign) take over on Indian economy. There is no doubt that investments of such huge magnitude and potential can revolutionize the Indian Retail Sector, it must be ascertained that the change serves India more than the investors. India has to choose between customer satisfaction and employment opportunities. India should d elay a shift in market to time when foreign investor cannot hurt the livelihood of the traditional r etailers and the economy is prepared for implementation of FDI policy.

Topic 8- FOREIGN DIRECT INVESTMENT IN INDIAN RETAIL


SECTOR: STRATEGIC ISSUES AND IMPLICATIONS OBJECTIVE
The paper analyses the reason (a) why foreign retailers are interested in India; (b) the strategies they are adopting to enter India and;

21

(c) their prospects in India.

ABSTRACT
Indian retail industry is one of the sunrise sectors with huge growth potential. The findings of the study point out that FDI in retail would undoubtedly enable India Inc to integrate its economy with that of the global economy. Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but should be significantly encouraged. As the retail market place changes shape and competition increases, the potential for improving retail productivity and cutting costs is likely to decrease. Therefore it is important for retailers to secure a distinctive position in the market place based on values relationships or experience. Also, as the organised retail space in India continues to grow, it is likely to see a number of initiatives in the near future. Companies are likely to combine expansion with innovative measures as they look to ensure profitability in difficult times.

REVIEW OF LITRATURE
The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, retail industry is one of the fastest growing industries in India, especially over the last few years. According to the Investment Commission of India, the retail sector is expected to grow almost three times its current levels to $660 billion by 2015. It is expected that India will be among the top 5 retail markets then. The flow of FDI in India has grown at a very fast pace over the last few years. The total amount of FDI in India came to around US$ 42.3 billion in 2001, in 2002 this figure stood at US$ 54.1 billion, in 2003 this figure came to US$ 75.4 billion, and in 2004 this figure increased to US$ 113 billion. This shows that the flow of foreign direct investment in India has grown at a very fast pace over the last few years. Each and every nation is trying to liberalize its economic policies in order to attract investments from not only, domestic players, but also from magnates all across the globe. Consequently, people with generous reserves of funds, all around the globe, are expanding their wings and seeking opportunities of investing in different spheres of this lucrative market. India too is not oblivious to the rapid developments taking place in the global market and has emerged as one of the prime destinations for the investment of funds from an impressive number of foreign investors.
In recent times the consumer are showing much greater confidence and in a due response the Retail players in the market are veering towards aggressive expansion plan. These Developments are clearly signaling an affluent time for retail sector. As the organized retail Space in India continues to grow, it is likely to see a number of initiatives in the near future.

22

Companies are likely to combine expansion with innovative measures as they look to ensure Profitability in difficult times. Players need to increase their investments in retail ancillaries and retail logistics to ensure sustained benefits. As a survival strategy, moves are on to allow FDI in the multi-brand retailing sector and there is fresh flow of equity investment in this Sector which will definitely give the Indian retail sector a much needed boost. According to industry experts, the next phase of growth is expected to come from rural markets. Organised retail market in India is expected to reach US$ 50 billion by 2011 while the rural market is projected to dominate the retail industry landscape in India by 2012 with total market share of above 50 per cent (RNCOS

CONCLUSIONS

The advantages of allowing unrestrained FDI in the retail sector evidently outweigh the Disadvantages attached to it and the same can be deduced from the examples of successful experiments in countries like Thailand and China; where too the issue of allowing FDI in the retail sector was first met with incessant protests, but later turned out to be one of the most promising political and economical decisions of their governments and led not only to the commendable rise in the level of employment but also led to the enormous development of their countrys GDP. Besides, it would also lead to inflow of latest technical knowhow, establishment of well integrated and sophisticated supply chains, availability of standard, latest and quality products help in up gradation of human skills and increased sourcing from India. As India capitalizes on the benefits of FDI, there will be more competition in the market at large and the rural sector of the country will be in the process of reformation, thus bringing about a socio-economic stability. FDI in Retail trading should be opened up to substantially improve productivity and distribution system through modern format retailing. The government should come out with a policy statement laying down the roadmap for modern retail and allowing foreign investment in retail. If FDI in Retail industry is allowed, it will help domestic players to capitalise MNCs players supply chains and distribution network experiences. The grant of industry status will help companies borrow at lower costs, and will also bestow them fiscal incentives etc. Furthermore, the country has benefited from large foreign investment flows in recent years. These flows, especially FDI, need to be encouraged through an appropriate policy regime Thus, as a matter of fact FDI in the buzzing Indian retail sector should not just be freely allowed but per contra should be significantly encouraged.

Topic 9 : OPPOSE FDI IN RETAIL: DEFEND INDIAN LIVELIHOODS

OBJECTIVE

23

This study will explain the reason for opposition to FDI in retail to the masses and strengthen the ongoing struggle to defend the jobs and livelihoods of crores of small retailers , fa rmers and producers.

ABSTRACT
FDI in retail has always been opposed by a large section of Indian society and polity. The Congr ess led UPA Government has decided to allow FDI upto 51% in retail trade through a cabinet de cision.The left parties had strongly opposed the move and had submitted a note to the UPA. In the absence of any substantial improvement in the employment generating capacity of the man ufacturing industries in our country, entry of foreign capital in the retail sector is likely to play ha voc with the livelihood of millions.

REVIEW OF LITRATURE
The UPA Govt. is considering the opening up of the retail trade sector to FDI. The NDA Govt. h ad also proposed steps to open up this sector to foreign investment during its tenure. Retail trade contributes around 10-11% of Indias GDP and currently employs over 4 crore people. Within th is, unorganized retailing accounts for 96% of the total retail trade. Organized retailing has witne ssed considerable growth in India in the last 1012 years and this inevitably causing displacement of small retailers in the organized sector and affec ts their livelihood. The case for FDI in retail is often made on the basis of the need to develop modern supply chains in India, in terms of the development of storage and warehousing, transportation and logistic and support services, especially in order to meet the requirements of agriculture and food processing industries. While the infrastructure and technology needs are undeniable, the belief that the entry of the multinational food retailers is the only way to build such infrastructure or upgrade technology is unfounded. That can also be achieved by increasing public investment and government intervention. It can of course be argued that the Indian farmers and manufacturers are going to enjoy access to international markets by supplying commodities to these multinational retailers. The Indian consumers would benefit from the low prices offered by the multinational retailers.Int ernational market access available to the producers of developing countries since they are unable to secure a fair price for their produce in the face of enormous monopsony power.Using their dee p pocket the multinational retailers can under price domestic retailers thus pushing them out if bu siness. The big branded producers achieve a larger market presence less due to lower costs or bet ter products and more due to their ability to sell life styles. At a time when organized retail in India is growing at a fast pace there is no dearth of indegineou s capital, the entry of foreign capital which would accelerate the concentration of business in org

24

anized retail causing job loss at a massive scale is unwarranted.

CONCLUSION
Entry of multinational retail chains has few positive spin-offs. In fact the negative effects in terms of job loss and the displacement of small retailers and traditional supply chains by the monopoly/monopsony power of the multinational retailers far outweigh the supposed benefits accruing to the organized retail sector in terms of increased efficiency. Therefore, the case for opening up of the retail sector to FDI.

Topic 10 : FDI IN INDIAN RETAIL SECTOR:PROBLEMS AND PROSPECTS OBJECTIVE


1. To study the factors that make India an attractive destination for retailers 2. To analyze benefits and problems of allowing FDI in India in the multi brand segment 3. To make recommendations on how and under what conditions can FDI be allowed in the Indian Retail Sector so as to reduce the risk of lifting restrictions

25

on the multi brand segment

ABSTRACTS
The retail industry in India is of late often being hailed as one of the sunrise sectors in the economy. AT Kearney, the well-known international management consultancy, identified India as one of the most attractive retail destinations globally from among thirty emergent markets in 2010. The government has allowed FDI in the single brand segment upto 51% and has also allowed 100% FDI in the wholesale segment. However, as of now, FDI in the multi brand segment wherein foreign giant retailers like Wal-Mart operate are not allowed to enter India. This is because the government wanted to ensure that the entry of global retail giants does not displace the existing population of millions of people employed in the local retail business. The retail sector in India is largely dominated by the unorganized players (mom and pop stores/ kirana or neighbourhood stores with 100- 500 square feet floor area). Organised sector forms just 5% of the market. The retail sector in India is under- invested and according to a study by McKinsey, almost Rs 50,000 crores worth of food is wasted because of poor supply chain management. These drawbacks can be removed if the modern foreign retailers are allowed to enter the Indian markets as they shall bring their technical know how and help in cutting prices by removing intermediaries from the supply chain. The paper discusses the problems and benefits of allowing FDI in the Indian retail sector and recommends how it may be gradually introduced when inevitably it must.

REVIEW OF LITERATURE

According to the news-paper Indo-Asian News Service, Washington, (dated December 09, 201 1) U.S. has said that they respect India for opening retail stores. The United States has said that f oreign direct investment in retail trade would be beneficial to both India and the US. U.S. is happ y for getting the opportunity of retail business in India, worlds second largest market. FDI will e at up small retailers: Discussion by business experts in Uttar Pradesh The discussion was or ganized by Hindustan Times Conclave among industry, traders and experts. The industry was rep resented by TCS, PHDCCI and IIA. The business community (traders) was represented by Sande ep Bansal President of Uttar Pradesh Udyog Vyapar Mandal, Banwari Lal Kanchal President of Uttar Pradesh Udyog Vyapar Pratinidhi, Sanjay Gupta President of Uttar Pradesh Adharsh Vyap ar Mandal, Kishan Chand Bhambwani President and Vinod Punjabi General Secretary of Hazrat ganj Traders Association. The expert was represented by handful of academicians. The summary of the discussion was that the industry people dread it, the business community (traders) are agai

26

nst it and the experts are favouring it. Whenever such measures are announced by the governmen t, the opinion in reaction often gets divided. The biggest beneficiary of FDI in retail would be farmers who will be able to improve their productivity. The foreign retailers will purchase raw materials from the farmers and various other goods from the original producer directly. The farmers across Indias 6, 00,000 villages stand to gain with higher profits and better market access. India is now the home of the largest number of moneyed consumers. Indian consumers will get access to quality goods at a low cost, that too at home. Tax revenue will increase like VAT and service tax. The organized sales with computerized billing system will also yield more revenue through commodity taxes like VAT and service tax to the government. Indian retailers have reason to be happy with foreign direct investment in the retail sector because it is a partnership opportunity that involves a lot of learning that could take them to higher profitability. There will be huge job opportunities in the country (in crores) as there will be opening of malls and store houses. The entry of modern retailers will expand the market creating large amount of additional jobs in retail. Middle class will be benefited as they are three-fourth of Indian population. The middle class will be benefited because they are newly emerged and swelling. There is arising aspiration for a stylish and luxurious life in this class. There has been shift from necessities to luxurious life. one the big un-organized retailers i.e. the shop of wealthy consumers and the other small un-orga nized retailers i.e. the shop of poor consumers. The latter will remain untouched while the former may be marginally affected. The real India which is hardworking bread earners, comprising of 80 crore people will surely not be benefitted. In terms of employment in retail sector around 38% in rural areas and around 47% in urban areas depend on retail trade for their livelihood, which will be effected. The world class retailers will import with huge quantities of consumer goods from their mother c ountry and elsewhere that are available relatively cheaper to the detriment of the interest of the d omestic producers. The proposal has drawbacks as it says that the big retailers have to purchase 3 0% from the small scale industries but they could be anywhere in the world. So the Indian indust ry will not be benefited. Some experts say that wherever these big retail stores have gone they ha ve ruined the local retailers. Small retail is the thing of the past in developed countries especially in the US & Europe. The world class retailers will import with huge quantities of consumer goods from their mother c ountry and elsewhere that are available relatively cheaper to the detriment of the interest of the d omestic producers. The proposal has drawbacks as it says that the big retailers have to purchase 3 0% from the small scale industries but they could be anywhere in the world. So the Indian indust

27

ry will not be benefited. Some experts say that wherever these big retail stores have gone they ha ve ruined the local retailers. Small retail is the thing of the past in developed countries especially in the US & Europe.

CONCLUSION
The author has made a research conducted a survey regarding this paper and the conclusion/findings based on the paper and survey are as follows: India is poised to grow as a Retail hub. It is estimated that the market would grow to $635 billion by 2015. It is imperative to sustain the modernization of the retail sector and cater to the growing taste of the Indian consumer and dispel the myth that the game is big vs. small or traditional vs. modern or organized vs. unorganized or local vs. foreign. What is needed is to promote consumption- which will ultimately lead to economic growth of the country. For the Indian consumer, the gradual and step wise entry of foreign companies in retail involves three pivotal changes- modern technology, better transparency in dealings and sharing best practices. To date, through the franchising route, foreign retailers have already entered India. Pizza Hut, Lacoste, Mango, Chanel, Louis Vuitton, Nike and Marks & Spenser have all entered via franchise agreements. The big multi-brand retailers have expressed keen desire to enter India and are looking forward the governments green signal. Metro of Germany, Shoprite Checkers of South Africa and Wal-Mart of US have already started to operate in the wholesale segment. Today, as far as multi-brand retailing is concerned, the question is not of whether Should India be open to FDI but when to open and how to open as under the WTO regime it is inevitable.

Given the WTO regime India is a party to, the entry of FDI in the retail sector is inevitable. Bit with the instruments of public policy in its hands, the government can create conditions that slow down their entry. Japan has done this quite effectively. In this fashion, the Government can try to ensure that the domestic and foreign players are approximately on an equal footing and that the domestic traders are not at an especial disadvantage. While it is true that some dislocation of traditional retailers will be felt, the government must ensure that retail does not remain concentrated in a few foreign hands.

POSITIVE ASPECTS OF THIS PROJECT

28

FDI can be a powerful catalyst to spur competition in the retail industry, due to the current scenar io of low competition and poor productivity. The policy of single-brand retail was adopted to allo w Indian consumers access to foreign brands. Since Indians spend a lot of money shopping abroa d, this policy enables them to spend the same money on the same goods in India. FDI in single-br and retailing was permitted in 2006, up to 51 per cent of ownership. Between then and May 2010, a total of 94 proposals have been received. Of these, 57 proposals have been approved. An FDI i nflow of US$196.46 million under the category of single brand retailing was received between A pril 2006 and September 2010, comprising 0.16 per cent of the total FDI inflows during the perio d. Retail stocks rose by as much as 5%. Shares of Pantaloon Retail (India) Ltd ended 4.84% up at Rs 441 on the Bombay Stock Exchange. Shares of Shoppers Stop Ltd rose 2.02% and Trent Ltd, 3.19%. The exchanges key index rose 173.04 points, or 0.99%, to 17,614.48. But this is very les s as compared to what it would have been had FDI upto 100% been allowed in India for single br and. The policy of allowing 100% FDI in single brand retail can benefit both the foreign retailer and the Indian partner foreign players get local market knowledge, while Indian companies can access global best management practices, designs and technological knowhow. By partially open ing this sector, the government was able to reduce the pressure from its trading partners in bilater al/ multilateral negotiations and could demonstrate Indias intentions in liberalising this sector in a phased manner. Permitting foreign investment in food-based retailing is likely to ensure adequa te flow of capital into the country & its productive use, in a manner likely to promote the welfare of all sections of society, particularly farmers and consumers. It would also help bring about imp rovements in farmer income & agricultural growth and assist in lowering consumer prices inflati on. Apart from this, by allowing FDI in retail trade, India will significantly flourish in terms of q uality standards and consumer expectations, since the inflow of FDI in retail sector is bound to p ull up the quality standards and cost-competitiveness of Indian producers in all the segments. It is therefore obvious that we should not only permit but encourage FDI in retail trade.Lastly, it is to be noted that the Indian Council of Research in International Economic Relations (ICRIER), a pr emier economic think tank of the country, which was appointed to look into the impact of BIG ca pital in the retail sector, has projected the worth of Indian retail sector to reach $496 billion by 2011-12 and ICRIER has also come to conclusion th at investment of big money (large corporates and FDI) in the retail sector would in the long run not harm interests of small, traditional, retailers. In light of the above, it can be safely concluded that allowing healthy FDI in the retail sector would not only lead to a substantial surge in the cou ntrys GDP and overall economic development, but would inter alia also help in integrating the I ndian retail market with that of the global retail market in addition to providing not just employm ent but a better paying employment, which the unorganized sector (kirana and other small time re tailing shops) have undoubtedly failed to provide to the masses employed in them.

29

CONCERNS
It is feared that, it would lead to unfair competition and ultimately result in large-scale exit of do mestic retailers, especially the small family managed outlets, leading to large scale displacement of persons employed in the retail sector. Further, as the manufacturing sector has not been growi ng fast enough, the persons displaced from the retail sector would not be absorbed there. Another concern is that the Indian retail sector, particularly organized retail, is still underdeveloped and in a nascent stage and that, therefore, it is important that the domestic retail sector is allowed to gro w and consolidate first, before opening this sector to foreign investors. Antagonists of FDI in retail sector oppose the same on various grounds, like, that the entry o f large global retailers such as Wal-Mart would kill local shops and millions of jobs, since the un organized retail sector employs an enormous percentage of Indian population after the agricultur e sector; secondly that the global retailers would conspire and exercise monopolistic power to rai se prices and monopolistic (big buying) power to reduce the prices received by the suppliers; thir dly, it would lead to asymmetrical growth in cities, causing discontent and social tension elsewhe re. Hence, both the consumers and the suppliers would lose, while the profit margins of such reta il chains would go up. Argument that only foreign players can create the supply chain for farm pr oduce is bogus. International retail players have no role in building roads or generating power. T hey are only required to create storage facilities and cold chains. This could be done by governm ents in India. Move will lead to large-scale job losses. International experience shows supermark ets invariably displace small retailers. Small retail has virtually been wiped out in developed cou ntries like the US and in Europe. South East Asian countries had to impose stringent zoning and l icensing regulations to restrict growth of supermarkets after small retailers were getting displace d. Fragmented markets give larger options to consumers. Consolidated markets make the consum er captive. Allowing foreign players with deep pockets leads to consolidation. International retail does not create additional markets, it merely displaces existing markets. India has the highest sho pping density in the world with 11 shops per 1,000 people. It has 1.2 crore shops employing over 4 crore people; 95% of these are small shops run by self-employ ed people. Global retail giants will resort to predatory pricing to create monopoly/oligopoly. This can result in essentials, including food supplies, being controlled by foreign organizations. Jobs i n the manufacturing sector will be lost because structured international retail makes purchases int ernationally and not from domestic sources. This has been the experience of most countries whic h have allowed FDI in retail. Comparison between India and China is misplaced. China is predo minantly a manufacturing economy. It's the largest supplier to Wal-Mart and other international majors. It obviously cannot say no to these chains opening stores in China when it is a global sup plier to them. India in contrast will lose both manufacturing and services jobs.

30

CONCLUSION OF THIS PROJECT


(1) WHEN AND TO WHAT EXTENT SHOULD FDI BE ALLOWED The capital formation needed to develop retail trade in India will take at least 2 to 3 years time. FDI should be opened up in a gradual phased manner, allowing a lead time for the Indian retailers to create a level playing field for all. FDI should be allowed in three stages which are as follows: First Stage of 2-3 years wherein only 26% FDI is allowed Second Stage of another 2 years wherein 49% FDI is allowed and The Third stage, when markets are completely ready and developed 100% FDI may be allowed. The government may additionally consider opening FDI first in relatively less sensitive sectors- like garments, lifestyle products, house ware, entertainment etc.

(2) CITY RESTRICTIONS Another objective of FDI is to enhance infrastructure. While there is no dearth of potential investors in metro cities, the Tier-2 and lesser cities are getting sidelined. FDI should be initially allowed in Tier-2 and lower cities to facilitate infrastructure building. The more such investment, the more incentives may be granted to operate in Metro cities. Models similar to airline operators need to be explored. With this the focus would be on incremental business and create a level playing field for all and not on cut throat competition.

(3) ZONING LAWS AND AREA RESERVATION FOR FOOD PRODUCTS The government is already considering a host of conditions for bringing in FDI. One of them is to impose a minimum limit of 10,000 sq ft on the floor space of foreign retail chains and limit the number of stores to one per million once FDI in retail is allowed. These huge retail stores should be located outside the city area and thus be subjected to certain zoning restrictions. Giant shopping centers must not add to our existing urban snarl. This also serves to create level playing fields for all players. Also, inclusion of a

31

clause for reserving at least 500-600 sq ft (out of 10,000 sq ft) of retail space for foods and processed foods alone will further help to protect the interests of certain sectors like agriculture and integrate them with the organized retail supply chain. These measures may be applicable for a short while only, and the Department of Industrial Policy (DIPP) may consider easing some of these restrictions with time.

(4) CONDITIONS ON SOURCING India should take lessons from the Thailand story. In Thailand and Malaysia, global retailers spelt doom for the traditional mom and pop stores. In fact, the Thai government had to step in to save local retailers from annihilation. It set up Allied Retail Trade, a network of franchised stores, which brought small stores together to fight the big chains. One solution to this problem is to put a restriction on sourcing of products locally. Thus foreign companies must be encouraged to form linkages with local producers and packages. For example, tie ups with Companies such as Amul, Vita, Verka for dairy may be made.

(5) SET UP AN AGRICULTURAL PERISHABLE PRODUCE COMMISSION (APPC) The government should set up Agricultural Perishable Produce Commission to ensure that procurement prices for perishable commodities are fair to farmers and that they are not distorted with relation to market prices. (6) FORMATS Stores like Wal-Mart which is one the worlds most successful retail organizations operates through many business formats- large departmental stores, allunder-one-roof super centers and members-only cash and carry stores that cater to small business and bulk consumers. Being an efficient retailer, it offers quality merchandise across all product categories at low prices. Its logistics, IT and sourcing efficiency are one of the best in the world. And the chains efficient business operations depend on it. The government may initially allow only supermarkets to be set up so that retailers cannot immediately indulge in predatory pricing.

(7) IMPROVE MANUFACTURING SECTOR

32

In order to address the dislocation issue, it becomes imperative to develop and improve the manufacturing sector in India. There has been a substantial fall in employment by the manufacturing sector, to the extent of 40.6 lakhs over the period 1998 to 2008, while its contribution to the GDP has grown at an average rate of only 3.7%. If this sector is given due attention and allowed to take wings, then it could be a source of great compensation to the displaced workforce from the retail industry

Conclusively we can say that FDI in retail has the both positive as well as negative aspects of it,b ut what we should consider before jumping on any conclusion that fears of small shopkeepers get ting displaced are vastly exaggerated. When domestic majors were allowed to invest in retail, bot h supermarket chains and neighbourhood pop-and-mom stores coexisted. If anything, the entry o f retail big boys is likely to hot up competition, giving consumers a better deal, both in prices and choices. Mega retail chains need to keep price points low and attractive - that's the USP of their b usiness. This is done by smart procurement and inventory management: Good practices from which Indian retail can also learn. The argument that farmers will suffer once global retail has de veloped a virtual monopoly is also weak. To begin with, it's very unlikely that global retail will e ver become monopolies. Stores like Wal-Mart or Tesco are by definition few, on the outskirts of cities (to keep real estate costs low), and can't intrude into the territory of local kiranas. So, they can not eat up their share of pie. Secondly, it can't be anyone's case that farmers are getting a goo d deal right now. The fact is that farmers barely subsist while middlemen take the cream. Let's no t get dreamy about this unequal relationship.

SCOPE OF FURTHER RESEARCH


1. One, while the government has lifted sectoral caps for FDI over the last decade, policies have thus far been piecemeal and ad-hoc and a source of uncertainty. Particular attention should also be paid to the removal of restrictions on FDI in the services sectors -- including telecoms, banking and insurance, aviation, etc as this will help easy transactions costs for both consumers and business.

2. Two, as a means of trying to overcome some of the hindrances to large-scale investments in the manufacturing sector. It is often noted that such a strategy was successfully undertaken by

33

China and used effectively by the government in policy experimentation before being replicated on a larger scale. 3. Three, focus should not just be on the absolute amount of gross FDI inflows but also the type. More specifically, while India has experienced an infusion of FDI inflows in recent times, a large portion of the new inflows have been in the form of M&As. 4. Four, over and above the creation of a business-friendly environment, it may be important for a potential host country to actively undertake investment-promotion policies to fill in information gaps or correct perception gaps that may hinder FDI inflows. 5. Five, while India must do image-building exercises to promote it as a favourable investment location; it desperately needs to get rid of the tag that it can only do services and not manufacturing. Between India and China, ask any businessman about where they will invest their money: if it is service sector related, the answer, more often than not, is India and when it is manufacturing sector related, the answer is mostly always China. 6. Six, is the desperate need to create a deep talent pool. Again an activity that is easier said than done because it takes time to create a deep talent pool. If one looks at investment bank reports on India, one point that gets constantly highlighted is the lack of talent at all levels. This is inherently dangerous for a country like India which has a tag of a services country; a sector that needs a deep talent pool to feed off. This lack of talent is reflected in the growth in wages which is one of the highest in the world. 7. Seven, the Government continues to advocate a policy of targeted promotion, suggesting it has potentially high payoffs, though also acknowledging that it can be a risky proposition. It finds support from the successes of countries like Singapore whose investment promotion authority, the Economic Development Board (EDB), has quite successfully targeted specific global corporations to meet their specific locational requirements, or broad sectors to invest in the city state. 8. Eight, while many policy barriers have been removed on FDI in India, results have at times been disappointing due to administrative barriers at the state level as well as lack of coordination between the central and state governments. There need to be greater coordination between the centre and states to ensure that the substantial foreign interest in investing in India gets translated into actual investment flows to the state.

34

9. Nine, India should continue to work towards developing a deep and liquid corporate debt market. India is one of the few countries with a major equity market but with a highly illiquid corporate debt market. A well functioning corporate debt market does one major thing for companies looking to invest in India. It is very likely that when companies are investing their money in India or in any other country, they are more likely to use debt rather than their own cash. Therefore, they would go to debt markets in their countries of origin and raise money there. 10. Ten, India should consciously work towards attracting greater FDI into R&D as a means of strengthening the countrys technological prowess and competitiveness. If India is to do so, there needs to be a strengthening in intellectual property rights or IPRs. So, Invest in India. Let the FDI inflows into India Let India lead the global market

BIBLIOGRAPHY

Kumara, Maheshwari. (2011).fdi in Indian retail sector. Indian institute of technology, M umbai.

Kumar, Rahul. (2010).what impact retail will have after fdi.Punjab technical university, P unjab.

Guruswami, Mohan and Kamal Sharma. (2010).fdi in retail inviting more trouble.ignou,

35

Delhi.

Kore, Shivanand Chandrakant. (2012).impact of fdi in retail sector.pdvp college,Maharas tra.

Raghva, Madhav. (2011d). Foreign Direct Investment in Indias Retail Bazaar:Oppounit y and Challenges.Indian statistical institute,new delhi.

B., Kamladevi. (2011). Investment in Retail The Foreign Direct Investment scenario.ku ppam,Andhra Pradesh.

Batra, Anju and Dr.Surendra kumar gupta. (2011) fdi in retail sector of India-a boon or bane.iipm.noida, Delhi

Gupta,Amisha.(2010).foreign direct investment in indian retail sector:strategic issues and implications.University of jammu:B-School,Jammu. Mehrotra,R.C. (2009).oppose fdi in retail:defend Indian livelihood.University of Rajastha n,Rajasthan. Singh,Bulbul and Suvidha Kamra. (2011). Sri Aurbindo College of Commerce and management,Ludhiana

36