FDI in Retail: A detailed study

Economics Project, II Semester 2013

Submitted by:

Uday Uddanti (F-214) Shrey Walia (F-207) Vignesh Rajendran (F-227) Divya Nihalani (F-169)

Table of Contents
Background ............................................................................................................................................. 2 Literature Review .................................................................................................................................... 2 Current Scenario ................................................................................................................................. 2 FIIs versus FDIs .................................................................................................................................... 2 Effects of FDI in retail in India ................................................................................................................. 4 Positive impact .................................................................................................................................... 4 Negative Impact .................................................................................................................................. 5 Neutral Impact .................................................................................................................................... 8 Effect on GDP ...................................................................................................................................... 8 Analysis of Issues ................................................................................................................................ 8 Magnitude ............................................................................................................................................. 13 Critical Analysis ..................................................................................................................................... 13 SWOT Analysis of Open FDI Policy .................................................................................................... 13 Conclusion ......................................................................................................................................... 17 Bibliograpgy .......................................................................................................................................... 17

Background Literature Review

Foreign direct investment (FDI) refers to the net inflows of investment to acquire a lasting management interest (10 per cent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, other long-term capital, and shortterm 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: inward foreign direct investment and outward foreign direct investment, resulting in a net FDI inflow (positive or negative), which is the cumulative number for a given period. Direct investment excludes investment through purchase of shares. One of the most striking developments during the last two decades is the spectacular growth of FDI in the global economic landscape. This unprecedented growth of global FDI in 1990 around the world make FDI an important and vital component of development strategy in both developed and developing nations and policies are designed in order to stimulate inward flows. In fact, FDI provides a win win situation to the host and the home countries. Both countries are directly interested in inviting FDI, because they benefit a lot from such type of investment. 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 skills and supplement domestic savings and foreign exchange. Moreover, the paucity of all types of resources 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 paves ways to this explosive growth of FDI around the globe

Current Scenario
In the past 2 decades, the world has seen drastic change in the capital flow patterns across its geographies. Huge transnational corporations have begun to plan and coordinate their manufacturing operations and supply chains across boundaries and are in a constant search for newer markets to sell their products and services in. Such practices have increased the flow of crosscountry investments. This has led to a greater need for a strong FDI policy framework in any nation that wants to be a part of this global paradigm shift.

FIIs versus FDIs

The issue of increased market volatility and crippling impact of global economic changes have been largely attributed to FII inflows rather than FDI inflows. The FII inflows are by nature more unstable than the FDI inflows as they tend to represent the investors interest in more liquid asset classes like open-market equities. Due to this nature of FIIs, these capital flows are regularly considered to be hot money. These inflows manifest themselves mainly in the secondary markets and offer very little impact on the actual capital levels in businesses. Investing in liquid asset classes allow the FII investors the freedom to easily pull out their investments in times of crises.

The FDI investments require a long term commitment to the entity which is invested in. These investments are made in assets with relatively less liquidity and operate predominantly in the primary markets. This usually leads to the investor taking up active control in the day to day functioning of the businesses they have invested in. In many cases, this leads to better corporate governance, a higher emphasis on good record keeping and the access to better technologies and trade partnerships which are crucial to the long term success of a business. Such practices tend to create an overall improvement in the economy in which the investment is made, mainly through the fringe benefits like investments in supply chain infrastructure. Though this might be true, the FDI flows should in no way be considered to be stable. These capital flows are also heavily influenced by global economic shocks and can suffocate the domestic credit markets if conditions are not favourable. Figure 1 illustrates the variation in the FDI flows across the world. The FDI inflows are clearly influenced by global financial changes, as can be seen from the dip following the dot com bubble and the World Trade Centre attacks in early 2000s; the subsequent boom in middle of the decade, fuelled by cheap interest rates in developed economies; and the ultimate fall in the following the financial stress caused by the US mortgage crisis and the sovereign debt crisis in the later part of the decade.

Risks Associated with Foreign Investments Allowing foreign capital inflows creates a significant exposure to exchange rate risks. To boost the confidence of international investors, governments in many capital-starved nations try to maintain currency pegs, which fix the local currencys exchange rate to a more liquid currency, usually the US dollar. Such measures are intended to signal to the global markets that the risk of the domestic currencys devaluation is low. These signals can have strong influences on the ability of the sovereigns to borrow as well. For example, the monetary consolidation under the euro allowed many sovereign states in the Euro Zone to issue Euro-bonds which had significantly lower yields. But with many financial policies, this is a double sided sword. To maintain a fixed exchange rate, the

central banks have to be able to supply the reference foreign currency in exchange for any quantity of their local currency if demand arises. This can put a severe strain on their foreign exchange reserves, which can rapidly deplete if the investors decide to pull back on a large scale. Having a peg on a highly liquid and largely traded currency also exposes the markets to speculative attacks. After the contagion, former prime minister of Malaysia accused the Hungarian tycoon George Soros of engaging in massive currency speculation with the Ringgits. The ultimate aim for any entity investing in a foreign economy is to get monetary returns on the investment in the long run. This puts a strain on the invested nations economy once the investments start making profits. These outflows can severely offset the balance of payment levels in the country. Another crippling requirement of nations trying to attract large foreign capital inflows is the need to maintain high interest rates in their local markets. This is needed to avoid flight of capital to other more secure economies which might offer similar returns on significantly safer investments. A of standard comparison in this aspect are the US bonds. Actions such as the Federal Reserve increasing its benchmark interest rates can trigger a massive flight to quality unless the domestic rates of return are high enough. This reduces the domestic central banks ability to control their rates to stimulate their domestic economies. As mentioned, most nations try to induce as much FDI inflows as possible. This creates a huge demand for these inflows and the entities which are willing to make these investments are highly sought after. The FDI inflows also require the investors to lock their capital in long term investments and incur large capital expenditures before they are able to draw returns. This puts an onus on them to ensure long term safety on their investments and their returns. To ensure this, many entities make significant policy changes requirements and government guarantees. This can lead to these entities forming strong lobbying groups to help promote their interests, especially with the governments which desperately seek out such inflows. At times, these interests do come in direct conflict with the national interests in these countries. In the absence of a strong policy framework and a regulatory body, this can lead to the national interests being compromised to induce these capital inflows. Lobbying efforts by these investors can also lead to rampant corruption in the related domestic agencies.

Effects of FDI in retail in India

Positive impact
Farming Investment in back end infrastructure will help reduce wastage of farm produce, improve livelihood of farmers, lower the prices of products and ease supply side inflation, food safety, hygiene and quality. Direct farm initiatives shall also provide better remuneration to farmers. More investment is likely in farming sector. Since each retailer is expected to bring $ 100 million, it will have notable investment in back end and logistics and likely to push employment further. Farmers have chances to gain greater market access, higher profits, better technology and linkages with consumers due to direct back end linkages. Key farmer issues can be addressed which would help agricultural productivity. Intermediaries often flout mandi norms and their pricing lacks transparency. Wholesale regulated markets, governed by State APMC Acts, have developed a monopolistic and non-

transparent character. According to some reports, Indian farmers realize only 1/3rd of the total price paid by final consumer, against 2/3rd by farmers in nations with a higher share of modern retail. Real Estate The decision to allow 51% in Multi brand retail is expected to prompt realtors to revive their plans to build malls and shopping complexes, which were shelved down in the past few years due to economic slowdown. As per Jones Lang Lasalle India Consultant, Rs. 22,000 crores retail real estate market shall grow at CAGR of 25 % a year for the next five years, growing at 50- 100 %. With this, much needed capital too is expected to come into the country for retail which means more job creation in future. Consumers The oft quoted term- consumer as a king and queen - is finally wearing a garb of reality. Entry of global retailers is expected to have direct impact on consumers as well as common man. It is expected to bring down commodity prices for the common man. Large scale and high volume sourcing and technology edge of global retailers help in realizing greater operational efficiency and wide assortment of goods at lower prices may be made available to consumers. Food safety, hygiene and quality are value additions. More than 60% of the wastage can be prevented if specialized cold storage chains are built up on mass scales, which eventually shall help common man. Long term cash liquidity: FDI will provide necessary capital for setting up organized retail chain stores. It is a long term investment because unlike equity capital, the physical capital invested in the domestic company is not easily liquidated. Lead driver for the countrys economic growth: FDI in MBR would create a competition among the global investors, which would ultimately ensure better and lower prices thus benefiting people in all sections of the society. There would be an increase in the market growth and expansion. It will increase retail employment and suppress untrained manpower and lack of experience. It will ensure better managerial techniques and success. Higher wages will be paid by the international companies. Urban consumers will be exposed to international lifestyles. FDI opens new doors for Franchising: Retail giants who are at their wings, seeking entry into foreign market look for other available alternatives. These restrictions on the global retailers regarding the inflow of Foreign Direct Investment, leads them towards acquiring the market entry through franchises. Thus, countries which offer promising market potentialities for retail growth offers substantial growth in the franchising sector as well.

Negative Impact
Growth in India has traditionally been powered by the high domestic savings and investments. India did not openly embrace the FDI powered growth model that was adopted in many of the East Asian economies. The government closed key sectors to FDI inflows and even in sectors which have been opened up, government regulations and control in may crucial sectors act as active deterrents to large foreign capital investments. When the capital flows to Asia slow down, many of the regions economies take a bad hit while India remains relatively immune to changes in the global economy. This structure went a long way in shielding its markets from the Asian Contagion to a large extend.

Recent turbulence in the global economic environment has led to a massive stall in Indias economic activities. The export demands are slacking and the growth has slowed down. The sovereign debt crisis has given rise to massive flight to quality on a global scale with investors rallying on gold and US treasuries. This has led to a massive depreciation of the rupee in comparison with the US dollar. Imports are more expensive and the demand constraints are dampening the economys ability to harness on its increased export competitiveness due to a weak Rupee. This has led to a large fiscal deficit which is triggering more outflows. This spiraling loop has sent alarm bells ringing throughout the system and the government has started to open up newer sectors to FDI, most notably the retail sector.

Figure 1: Distribution of FDI inflow across states. Source: www.ft.com One of the major arguments used to advocate this policy change is the creation of a better supply chain infrastructure following the FDI in this sector. This infrastructure improvement is proposed to reduce the wastage of goods like fruits, vegetables and grains in the country. This process might not pan out so efficiently. The scale of food wastage due to bad storage infrastructure is of astronomical

levels in India. About 30-40% of the fruits and vegetables become unfit for consumption before reaching the markets due to a gross shortfall in infrastructure. FDI backed retail outlets would not be very effective in stemming this crisis because of two reasons. The volumes that they would be able to sell are going to be far lesser given the percentage of the Indian population they can serve. Secondly, most of the FDI backed retail outlets would be sourcing from premium producers. The wastage of goods among these producers is actually very low. Moreover, the FDI policy itself is a hurdle in the development of an efficient infrastructure. The clauses like the entry barrier on towns with low population and the autonomy for states to allow or reject the FDI flows puts geographical constraints which may not allow for the development of the most optimal system. Issues like the uncertainty created by the states autonomy might discourage large infrastructure investments in states where the opposing parties may have opposing views on this issue. This can also give rise to the creation of lobbying groups which can lead to corrupt practices. In India, the supply chain infrastructure is severely ignored by the government. It owns only a small portion of structures like cold storages which are critical for improvement in the efficiency of the system. Depending on fringe benefits from another sector to improve this shortfall should not be the way to handle this issue. Larger investments should be made by the government itself to ensure that the overall system efficiency is improved. Another line of thought adopted to defend the need for FDI is the comparative analysis with Chinas rapid growth which was fuelled by such capital inflows. There are a few things that should be considered in this argument as well. China has a much larger manufacturing base than India. WalMart, the quintessential global retailer sources more than 70% of its commodities from China. This volume is so large that the Wal-Mart Chinas director of external affairs remarked If Wal-Mart were an individual economy, it would rank as Chinas eighth-biggest trading partner, ahead of Russia, Australia and Canada. This has actually forms a sizeable chunk of the US trade deficit to China. This kind of a relationship is very different from what India can achieve, even with the minimum floor on the domestic goods to be stocked in the retail outlets. This can also lead to massive dumping of commodities from China into the local markets as a result. Another major characteristic of China is its ability to pull off massive labor movements across geographies. When the Deng Xiaoping established the special economic zones on Chinas eastern seaboard, they were able to achieve massive growth rates in those enclosed environments which led to massive inflow of labor from the rural districts of China. This is not an isolated behavior. Even in India, there is a huge geographical disparity in the foreign investment pattern. Figure 2 shows this phenomenon. The investment Patten shows very little correlation to the population distribution among these states. This might lead to a large scale labor displacement in the country since these outlets are likely to follow similar geographical distributions. This is a cause for concern, which needs to be looked into. In the airlines sector, the opening up of FDI has led to apprehension among the local players as they fear possible cartelization. The competitive influence of the FDI backed entities might be lethal to domestic businesses as they have the financial backing to ride out any subsequent price wars. This is especially potent in a country like India which has relatively high price elasticity. This can cause a shift in the competitive dynamics that these sectors have today, possibly creating larger barriers for new entrepreneurial firms which offer better growth in the fundamentals of the economy in the long run.

One of the main reasons which allowed the Asian Contagion evolved into a massive crisis was the gross misappropriation of the capital inflows. Many of the countries which received large volumes of capital inflows had deep structural flaws. Corruption was rampant in these economies and the lack of a strong regulatory framework crippled efficient capital allocation. The benefits of these investments did not trickle down to the entire economy and a large part of it was contained to within a small group of individuals who grew massively wealthy. Many of these economies did not see any growth in their manufacturing bases and opening up their markets led to dumping of certain goods from global markets. India too is plagued by these inefficiencies. Policies are driven by political motivation rather than financial prudence. Corruption is another major issue in India. This has severely undermined the investor confidence too. Under these circumstances, FDI is a path which should be handled with utmost care. Yes, the capital inflows help boost the local credit markets which fosters growth, but a deeper analysis should be done into how this system would behave under stress from global forces.

Neutral Impact Effect on GDP Analysis of Issues

Will it create jobs and provide a boost to employment? Employment generation in the retail sector is a function of size and productivity within that sector. Productivity norms differ between independent and corporatized retail. It is therefore important to assess the respective shares of independent and corporatized retail and map these against the respective productivity norms to determine the net impact of both independent and corporatized retail on employment. India is home to approx. 15 million points of sale, or shops, of which a majority are run as standalone entities owned and operated by members of the same family. These independent retail shops thus provide employment to family members and also paid employees. Almost all the paid employees in these shops are part of an informal workforce and have no guaranteed social security cover, minimum wage or fixed working hours. Employment in this segment averages ~1.5 employees per shop. @ 6% Real Growth @ 7% Real Growth @ 8% Real Growth On the other hand, employment in corporatized retail comprises employees working on the shop floor, clerks manning the billing counters, security guards and employees in central / corporatized functions. The productivity norms for employment in corporatized retail are a function of sales per square feet, or sq. ft., and employees per sq. ft.

The next step is to understand the shares of independent and corporatized retail within total merchandise retail. In 2001, the share of corporatized retail in the retail sector was under 5% and

the remaining 95% was constituted by independent retail. By 2011, the share of corporatized retail grew to 7%; this is projected to grow further to 20% by 2021. The analysis presented in above shows the effect of job creation by independent retail and by corporatized retail. An important conclusion from this analysis is that employment in corporatized retail has not grown at the cost of independent retail. In fact, independent retail has added 4 million jobs in the last decade. In the next decade, while corporatized retail will add another 2.7 million jobs, independent retail will create 9 million more jobs. The argument that FDI in retail will lead to job losses in independent retail is therefore flawed. Equally flawed is the argument that FDI in retail will create many new jobs in corporatized retail. The truth is that employment generation in the retail sector is not a zero sum game. It is true that opening up the retail sector will definitely create new jobs in corporatized retail but the extent of this job creation will be limited by corporatized retails inability to grow its share in total merchandise retail. Will foreign retailers kill local industry? Corporatized retail will manage to grow its share of the retail pie from the current 7% to nearly 20% in the next decade as stated earlier. By 2021, this will translate into USD 162 billion in revenue for corporatized retail. Here it is worthwhile to understand the share of corporatized retail that will be contributed by international retailers and the share that will be contributed by Indian retailers

2001 2012 2021 In 2011, the total revenue of all hypermarkets (largely international retailers) in China was USD 80 billion including the revenues of Walmart, Carrefour, Tesco and other regional players. This is after a ~15 year long journey for these retailers, in China. Optimistically, if it is assumed that retail sector reforms in India will lead to the creation of a similar scale for these players then, in 2021, all the international retailers in India can at best aspire for a USD 80 billion revenue share. This translates to ~50% of the total revenues of organized retail (USD 162 billion) in 2021, with Indian corporatized retailers contributing the balance. This translates to around 10% of the total retail market each for international and Indian corporatized retailers by 2021.

An analysis of the extent of globalization of the worlds leading retailers also brings out the fact that retailing is essentially a local play. Table 5 elaborates on the total revenues of worlds top retailers in 2011. The analysis compares the share of sales of these retailers from their home market against that from international markets. These are retailers who have pursued international expansion beyond for quite a while. Despite this long globalization journey, six out of these eight retailers generate no more than a third of their sales from international markets. The other two retailers are still dependent on their home markets for nearly two-fifths of total revenues. The key inference here is that expanding retailing beyond home markets is challenging. It is not easy to replicate an existing model from abroad and plant it in a new country. Every country presents unique challenges which retailers need to confront while chalking out a growth strategy for that country. In the context of India, there are many such challenges, most of which are unique. Resolving these requires sustained capital deployment and patience for returns over a long time. This analysis therefore assumes international retailers share of the Indian retail sector to be no more than 10% in the next 10 years, even in a best-case scenario. Even with this being the case, 90% of the retail sector will still be attributable to independent retail or Indian corporatized retail. Thus, the argument that international retailers will completely takeover local retail does not hold water. Will it reduce the cost of distributing goods to the consumer? The supply chain for retail operations comprises product development, merchandising, vendor development, logistics, warehousing, in-store selling etc. Inarguably, retailing requires scale, precision and efficiency in the supply chain for retailers to be profitable. Retailers do this by integrating the supply chain thus ensuring that quality merchandise is delivered faster without damage or leakage of any kind. The efficient working of this supply chain reduces the costs incurred in making goods reach the consumer. This demands capital deployment by retailers at every step of the value chain involved in meeting this goal. In the Indian context, this capital deployment cannot be undertaken by independent retail, due to the simple reason that this segment is fragmented and undercapitalized. The quantum and scale of this capital deployment necessitates the large-scale participation of the private sector. Like elsewhere in the world, this can only be done by corporatized retail. However, corporatized retails inability to grow beyond a certain size will hamper this desired capital creation. Ideally, retailing all merchandise through corporatized retail will demand USD 200 billion of capital deployment.

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However, in this estimation, corporatized retail can at best aspire for a 20% share of total merchandise sales by 2021. Therefore, the incremental capital creation by corporatized retail will amount to USD 40 billion, of which USD 20 billion will be attributable to international retail (Table 6). The lack of adequate capital deployment by corporatized retail will consequently inhibit the desired creation of scale and efficiency in the retail sectors supply chain. This shortfall in performance of the retail supply chain will therefore not have the desired effect of reducing either the time to market or the cost of distributing merchandise. Will it help in taming inflation? It was argued in the previous point that corporatized retail does help in reducing the cost of distributing merchandise by building scale and efficiency. This reduction in the distribution cost of merchandise is passed on to the consumer through a lower retail price for that merchandise. Thus, it contributes positively in reducing inflation. It is important to understand the various categories that make up merchandise retail and the contribution of corporatized retail to each of these categories. Food has the largest impact on consumer price inflation. This is validated by the fact that today 70% of merchandise retailing comprises food & groceries (Table 7). Therefore, mapping the share of corporatized retail in dispensing food merchandise will give an objective picture of corporatized retails ability (present and future) to tame inflation.

For simplicity, merchandise retail is broadly classified into three categories - Food & Groceries, Apparel, and Others (Jewellery & Watches, Electronics, Home Improvement, Pharmacy, Footwear etc.) While 70% of total merchandise retail comprises Food & Groceries, only 3% of Food & Groceries is retailed through corporatized retail. This scenario is not going to change much in the coming decade. While, corporatized retails share will register an impressive growth in other categories, Food & Groceries will prove to be a challenge. By 2021, the share of corporatized retail in Food & Groceries retail will grow by a mere 2 percentage points, to around 5%. This is largely to do with the market structure on the supply side of the Indian economy. This market structure will not allow corporatized retailers to integrate their food & groceries supply chain. The lack of direct access to farmers for sourcing, interstate movement of goods, tax structures, and inadequate capacities in the food supply chain will act as the chief barriers to this integration. The inability of corporatized

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retail to grow its share in food & groceries retail will therefore curtail its firepower in achieving the intended objective of taming inflation. Is it detrimental to farmers? This argument follows logically from the previous argument about corporatized retails role in taming inflation. If we look into the evolution of retailing world over, corporatized retail does play a constructive role in better price realization. It creates a transparency in the procurement process and provides market-based options for farmers, among other benefits. However, in the Indian context, it is too early for this debate to happen, given that corporatized retail will not be in a position to create a large enough dent in food & groceries retailing. The important but less talked about issues Positive impact of corporatized retail on tax receipts There is a positive relationship between the increase in tax receipts and the increasing share of corporatized retail. Most retail transactions conducted in the ~15 million shops in India are in cash. This provides a significant leeway for a parallel economy to thrive. There are tax (VAT) leakages via under-invoicing or non-reportage of sales. The structure of independent retail also provides enabling conditions for the trade of spurious and counterfeit goods. With an increasing share of corporatized retail, the probability of such leakages diminishes and the certainty of tax receipts increases. A case to this effect is made in Table 8.

2001 2012 2021 In this analysis, the impact of an increasing share of corporatized retail on certainty in tax revenues is assessed. This incremental increase in tax revenue goes directly into the coffers of all the Indian states to the extent of their share in Indias retail pie.

In Table 9, a case is made for the incremental share of tax revenues from corporatized retail in 2012 and in 2021 for the top 5 Indian states by merchandise sale. The states share of Indias total GDP is assumed as a proxy to the relative share of retail sales in these top 5 states. It is also assumed that this relative share will not change in the coming decade. The impact of E-commerce on Employment Generation E-tailing in India is poised to grow manifold in the next decade, thanks to the convergence of multiple factors that will enable the creation of an ecosystem for the take-off of e-tailing in India. From the demand perspective, some of the enabling factors will include Internet access via

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broadband or high speed mobile networks, the availability and penetration of affordable smartphones and tablets, and the creation of a sizeable consumption class that will be short of time for shopping through brick-and-mortar formats. From the constraints perspective, the lack of access to affordable real estate will be become the biggest enabler for the take-off of e-tailing in India.

As per the estimates (Table 10), growth in e-tailing is capable of generating additional direct employment for nearly 1 million people. A significant proportion of these jobs will be responsible for delivering goods from the warehouse to the consumers location, which is also referred to as last mile delivery.

Magnitude Critical Analysis

SWOT Analysis of Open FDI Policy
In any strategic planning process, two factors namely internal and external Environmental factors play an important role. A thorough scan of these factors is important for further planning. The environmental factors, which are internal to the retail sector, can be classified as strengths and weakness. The factors, which are external to the sector, can be classified as opportunities and threats. The strategic analysis of environmental factors is referred as SWOT analysis. This analysis provides the information that is helpful in understanding the retail sector resource mobilization and capabilities to the competitive environment in which it operates. Finally, this will be an instrumental in formulation of strategies for future growth and development of the sector. Strengths 1. Boost up competition: Welcoming the FDI in retail industry can prove advantageous for India as it increase the competition in retail chain at domestic level. The competition always demands the innovation and differentiation and the out result of these two is the quality goods. As the competition increases, the competitor is compelled to serve quality of goods at competitive at reasonable price. 2. Benefits to farmers: In most cases, in the retailing business, the intermediaries have dominated the interface between the manufacturers or producers and the consumers. Hence the farmers and manufacturers lose their margins as the major share is eaten up by the middle men. This issue can be resolved by FDI, as farmers might get contract farming where they will supply to a retailer based upon demand and will get good cash for that, they need not to search for buyers. 3. Benefits to consumers: Consumer will get assortment of products at squat prices compared to market rates, and will have more options to get international brands at one place. because of competitive prices, and will improve the standard of living of the consumers. 4. Generate Employment opportunities: Bharti Walmart, a joint venture between Bharti Enterprises and Wal-Mart Stores, will open a training centre at Jalna in Maharashtra on a public private partnership basis, according to a press note released on April 27, 2012. Bharti Walmart currently runs three such training centres under the PPP model in Amritsar, Delhi and Bangalore, and three training centres at its modern wholesale stores in Zirakpur,

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5.

6.

7. 8. 9.

Jalandhar and Ludhiana. The domestic retail sector is growing fast providing growth opportunities. However, the industry lacks the talent pool with required skill sets to leverage this huge potential. Bharti Walmart training centres aim to bridge this gap by imparting training in various aspects of retailing to under-privileged youth making them employable in the retail sector. Efficient Banking Services: Efficient and customized services of banks today, is a result of effective competition which increases only after the foreign players were welcomed in arena. Large scale investments: It has also contributed to large scale investments in the real estate sector with major national and global players investing in devolving the infrastructure and construction of the retailing business. Increased Purchasing power: Large domestic market with an increasing middle class and potential customers with purchasing power. Ranked second in Global Retail Development Index of 30 developing countries drawn up by AT Kearney and hence considered as a potential sector. The annual growth of departmental stores is estimated at 24% which will add to substantial surge in the countrys overall economic development.

Weaknesses 1. Lack of 'Industry' status, thereby creating financial issues for retailers: The retail sector in India does not enjoy the status of an "Industry, thereby making difficult for the retailers to raise funds for the expansion projects as it is easier to access the flow of funds with that status. 2. Lack of Infrastructure: Lack of infrastructure in the retailing chain has been one of the major issues of concern which has led the process to an incompetent market mechanism. For example, in spite of India being one of the largest producers of vegetables and fruits, lack of proper count of cold storages has significantly affected the selling of these perishable items. FDI might help India overcome such issues by channelizing the resources in the right manner. 3. Catering to high end customers: This will mainly cater to high-end consumers placed in metros and will not deliver mass consumption goods for customers in villages and small towns. 4. Volume of sales is very low: The volume of sales in Indian retailing is low. India has largest population in the world and a fast growing economy. 5. Rising retail real estate rentals: The rapid development of retail sector is the sharp improvement in the availability of retail space. But the current surge in property prices, retail real estate rentals have escalated significantly, which may render a few retailing business houses unavailable. Retail companies have to pay high rentals which are block the profits. 6. Small size outlets: Small size outlets are also one of the major weaknesses in the Indian retailing. More than 96% of the outlets are lesser than 500 sq.ft and are also smaller than those in the developed countries. 7. Inadequate merchandise mix: Retail chains are not settled down as on date with proper merchandise mix for the mall outlets. Retailing today is not about selling at the shop, but also about researching and surveying the market, offering choice, competitive prices and retailing consumers; hence there is a long road ahead. Opportunities 1. Improvement in quality standards: The inflow of FDI in retail sector is bound to pull up the quality standards and cost-competitiveness of Indian producers in all the segments and hence India will significantly flourish in terms of Consumer Expectations.

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2. Improving Distribution and Warehousing Technologies: The technical know-how from global firms, such as warehousing technologies and distribution systems, will lend itself to improving the supply chain in India, especially for agricultural produce. 3. Attractive Market: Global retail giants take India as key market .It is rated fifth most attractive retail market. Indian retail industry has come forth as one of the most dynamic and fast paced industry with several players entering the market. The organised retail sector is expected to grow stronger than GDP growth in the next five years driven by changing lifestyles, increase in income, purchasing power and favourable demographic outline. Food and apparel retailing are key drivers of growth. 4. There will be more organization in the sector. There are numerous empirical evidences across globe relating to massive increase in the employment opportunities as the sector grows after the reforms were initiated in countries like US and China. India is likely to experience the same situation in this liberalised and open regime of FDI in retail sector in India. It can become one of the largest industries in terms of numbers of employees and establishments. Once the concept picks up, due to demonstration effect, there will be an overall up-gradation of domestic retail trade. 5. Rural retailing is still unexploited Indian market and could act as an opportunity for the giants to venture into the retail market. 6. Promotes Healthy competition check on inflation: Retail giants such as Wal-Mart, Carrefour, Tesco, Target, Metro, Coop and 350 other global retail companies are already having operations in many countries for over 30 years. Contrary to a view prevailing across the globe that these MNCs will become a source of monopolies, rather they have managed to keep a check on the food inflation through their healthy competitive practices and giving variety and reasonably priced products to the customers. 7. More transparency compared to traditional Mandi systems: The intermediaries operating in the Indian system are not adhering to transparency in the system relating to their price strategies. According to some of the reports, an average Indian farmer realise only one-third of the price, which a final consumer pays, but there will be more rationality and transparency in the pricing policies of theses MNCs. 8. Eviction of Intermediaries and directly benefitting the farmers and producers at large: The prices of the commodities will be automatically checked. For example, according to the Business Standard, Walmart has introduced "Direct Farm Project" at Haider Nagar near Malerkotla in Punjab, where 110 farmers have been connected with Bharti Walmart for sourcing fresh vegetables directly. These strategies will benefit unswervingly the farmers and producers at large in respect of realisation of true prices evicting the intermediaries. 9. Quality Control and control over leakage and wastage: There are number of issues relating to malpractices and inefficiencies of the traditional system by which children are not able to get the proper food (malnourished), there are losses, food gets rotten in the transit etc. To correct this system and make available cheap product with good quality is an important step in their (MNC) endeavour, which is possible by open FDI as Cost-cautious and highly competitive retailers will try to avoid these wastage and looses and it will be their endeavour to make the products available at lowest prices, hence making food available to the weakest and poorest segment of Indian society which is the need of today. 10. Heavy flow of foreign capital will help in building up the infrastructure for the growing population: India is a capital deficit country with big challenges of growing population, developmental needs and with its present budgetary deficit cannot satisfy the growing needs of the ever growing Indian Population. Hence foreign capital inflow will bridge this gap and will enable to create a heavy and good capital base. 11. Sustainable development and regulated system: There will be sustainable development and many other vital economic issues will be focused upon like child labour, overtime, not taking of their welfare. These issues will not have any room in this transparent open system as

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contract between the employer and worker will evict corruption from grass root level and will control black money. Threats 1. Massive Job Losses: Indian economy is a developing economy and the level of development is not as desired. Due to paucity of infrastructure resources in Indian economy, there is a direct threat from big giants like Wal-Mart, which will compel current independent stores to close which will directly lead to massive job losses, as their level is very high, fully automated which need very few people to operate. This will lead to massive job losses; also since the Sector is unable to employ retail staff on contract basis, this becomes a biggest threat for the Indian economy. 2. Sustaining of loss strategy: Another challenge and threat Indian companies perceive is the sustaining of the loss by initially lowering the price to penetrate the market and this is a very usual policy adopted by these big players. They can afford to lower the prices in initial stages in order to knock-out the competition and become a monopoly and later on raise the prices like was done by Pepsi and Coke. 3. Inequitable Competition: It would lead to very inequitable competition and eventually result in large-scale exit of domestic 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 growing fast enough, the persons displaced from the retail sector would not be absorbed there. 4. Repatriation of profits outside India: India doesn't need foreign retailers, since home grown companies and traditional markets may be able to do the job. Just like in BPO industry, work will be done by Indians, profits will go to foreigners hence is not viable solution for Indians. We cannot ever forget the example of East India Company. It entered India as a trader and then took over politically. 5. Persistence of Political inconclusiveness of issues: There is still no consensus made by government .In a politically and culturally diverse country like India, within no time every economic issues turns out to become a political issue and there is a persistence of inconclusiveness on the issue. 6. Offensive public opinion: There are strong apprehensive comments and action seen by the proliferation of these stores. A Wall Street Journal article reports that in Uttar Pradesh, Uma Bharti, a senior leader of the opposition Bharatiya Janata Party (BJP), threatened to "set fire to the first Wal-Mart store whenever it opens;" with her colleague Sushma Swaraj busy tweeting up a storm of misinformation about how Wal-Mart allegedly ruined the U.S. economy. With these offensive comments to develop a consensus is a most challenging job by government of India. 7. Immature, undersize and nascent stage of India retail sector: Another concern of Government of India is that the Indian retail sector, particularly organized retail, is still immature, undersized and is in a nascent stage and that, therefore, it is important that the domestic retail sector is allowed to nurture and strengthen first, before fully opening this sector to foreign investors. 8. Monopolistic tendencies and unnatural price trends: Another concern is that the global retailers would conspire and exercise monopolistic power to raise prices and monopolistic (big buying) power to reduce the prices received by the suppliers. 9. Asymmetric growth of cities: It would lead to asymmetrical growth in cities, causing discontent and social tension elsewhere. Hence, both the consumers and the suppliers would lose, while the profit margins of such retail chains would go up. 10. Labour rules and regulation are also not followed in the organized retails. 11. Lack of uniform tax system for organized retailing is also one of the obstacles. 12. Inadequate infrastructure is likely to be an obstacle in the growth of organized retails.

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Conclusion
In view of the above discussion, if we try to balance the opportunities and prospects attached to the given economic reforms, it could be advantageous for Indian economy once executed. With big retail giants coming to India, it will surely improve our back-end storage and procurement process. Once these multi-chain retailers establish themselves, they will create infrastructure facilities, which will also propel the existing infrastructure. This has been evident on January 11 & 12, 2012, when the notification increasing FDI limit in single-brand retail from 51% to 100%, was announced. FDI in multi-brand retail' should also be given a green signal as soon as possible. Keeping in view the above benefits (or opportunities mentioned above), it is very reasonable to say that the period for which we delay these reforms will be a loss for the Government only, since majority of the public is in favour of this reform. The farmers will benefit from FDI as they will be able to get better prices for their produce. The elimination of the intermediate channels in the procurement process will lead to reduction of prices for consumers respectively. The regulation in the FDI Bill that 30% of the total procurement has to come from small and medium enterprises will benefit the domestic businesses. Of course a policy is needed to protect the small and medium market channels from Chinese invasion. The whole economy will be benefitted including government and people at large with the reform process. Retailers venturing the Indian market must ensure that they have considered the opportunities and the challenges to maximize their returns. Retailers will need to bank on the local knowledge brought in by their partners, employees, service providers to reduce the lead time required by them to establish operations and get a firm place in the Indian market. There is a need for a symbiosis approach for the welfare of the public at large.

Bibliograpgy
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11. Soundararaj, J (2012): 100% FDI in Single-Brand Retail Of India- A Boon or a Bane? International Journal of Multidisciplinary Management Studies, May 2012; Vol.2 Issue 5.

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